scholarly journals Is the Taxable Income Elasticity Sufficient to Calculate Deadweight Loss? The Implications of Evasion and Avoidance

2009 ◽  
Vol 1 (2) ◽  
pp. 31-52 ◽  
Author(s):  
Raj Chetty
Keyword(s):  
Income Elasticity ◽  
Weighted Average ◽  
Deadweight Loss ◽  
Tax Rates ◽  
Tax Rate ◽  
Taxable Income ◽  
Income Elasticities ◽  
Highly Sensitive ◽  
Efficiency Cost ◽  
Resource Cost

Martin Feldstein's (1999) widely used taxable income formula for deadweight loss assumes the marginal social cost of evasion and avoidance equals the tax rate. This condition is likely to be violated in practice for two reasons. First, some of the costs of evasion and avoidance are transfers to other agents. Second, some individuals overestimate the costs of evasion and avoidance. In such situations, excess burden depends on a weighted average of the taxable income and total earned income elasticities, with the weight determined by the resource cost of sheltering income from taxation. This generalized formula implies the efficiency cost of taxing high income individuals is not necessarily large despite evidence that their reported incomes are highly sensitive to marginal tax rates. (JEL H21, H24, H26)

Does Evasion Invalidate the Welfare Sufficiency of the ETI?

2016 ◽  
Vol 16 (4) ◽  
Author(s):  
Christian Gillitzer ◽  
Joel Slemrod
Keyword(s):  
Economic Policy ◽  
Risk Aversion ◽  
Tax Evasion ◽  
Income Elasticity ◽  
Deadweight Loss ◽  
Sufficient Statistic ◽  
Taxable Income ◽  
Elasticity Of Taxable Income ◽  
Efficiency Cost ◽  
Economic Journal

Abstract In an influential article, Raj Chetty (2009, “Is the Taxable Income Elasticity Sufficient to Calculate Deadweight Loss? The Implications of Evasion and Avoidance.” American Economic Journal: Economic Policy 1 (2):31–52) argues that in the presence of tax evasion the elasticity of taxable income (ETI) is no longer a sufficient statistic for the marginal efficiency cost of funds (MECF). We show that, under Chetty’s (2009, “Is the Taxable Income Elasticity Sufficient to Calculate Deadweight Loss? The Implications of Evasion and Avoidance.” American Economic Journal: Economic Policy 1 (2):31–52) risk-neutrality assumption, correctly measuring the standard MECF only requires adding detected evasion inclusive of penalties. In the more general case of risk aversion, it further requires amending the formula to address the private risk-bearing cost of tax evasion.

Measuring Revenue-maximizing Elasticities of Taxable Income

2016 ◽  
Vol 45 (2) ◽  
pp. 174-204 ◽  
Author(s):  
John Creedy ◽  
Norman Gemmell
Keyword(s):  
Income Tax ◽  
Tax Rates ◽  
Marginal Rate ◽  
Tax System ◽  
Tax Rate ◽  
Taxable Income ◽  
Wide Range ◽  
The Us ◽  
Marginal Tax Rates ◽  
The Right

This article considers the question of whether marginal tax rates (MTRs) in the US income tax system are on the “right” side of their respective Laffer curves. Previous attention has tended to focus specifically on the top MTR. Conceptual expressions for these “revenue-maximizing elasticities of taxable income” (ETI L), based on readily observable tax parameters, are presented for each tax rate in a multi-rate income tax system. Applying these to the US income tax, with its complex effective marginal rate structure, demonstrates that a wide range of revenue-maximizing ETI values can be expected within, and across, tax brackets and for all taxpayers in aggregate. For some significant groups of taxpayers, these revenue-maximizing ETIs appear to be within the range of empirically estimated elasticities.

scholarly journals The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review

2012 ◽  
Vol 50 (1) ◽  
pp. 3-50 ◽  
Author(s):  
Emmanuel Saez ◽  
Joel Slemrod ◽  
Seth H Giertz
Keyword(s):  
The United States ◽  
Critical Discussion ◽  
Future Research ◽  
Tax Rates ◽  
Empirical Estimation ◽  
Sufficient Statistic ◽  
Tax Rate ◽  
Taxable Income ◽  
Elasticity Of Taxable Income ◽  
Marginal Tax Rates

This paper critically surveys the large and growing literature estimating the elasticity of taxable income with respect to marginal tax rates using tax return data. First, we provide a theoretical framework showing under what assumptions this elasticity can be used as a sufficient statistic for efficiency and optimal tax analysis. We discuss what other parameters should be estimated when the elasticity is not a sufficient statistic. Second, we discuss conceptually the key issues that arise in the empirical estimation of the elasticity of taxable income using the example of the 1993 top individual income tax rate increase in the United States to illustrate those issues. Third, we provide a critical discussion of selected empirical analyses of the elasticity of taxable income in light of the theoretical and empirical framework we laid out. Finally, we discuss avenues for future research. (JEL H24, H31, J22)

scholarly journals ELASTISITAS PENDAPATAN WAJIB PAJAK (ELASTICITY OF TAXABLE INCOME) DI INDONESIA

KEBERLANJUTAN ◽  
2019 ◽  
Vol 4 (2) ◽  
pp. 1192
Author(s):  
Arif Nugrahanto
Keyword(s):  
Labor Supply ◽  
Income Elasticity ◽  
Secular Trend ◽  
Working Hours ◽  
Tax Rates ◽  
Net Income ◽  
Transfer Policy ◽  
Taxable Income ◽  
Elasticity Of Taxable Income ◽  
Short Run

AbstractThe responses of taxpayers due to the changes in tax rates have attracted the curiosity of many economists. The magnitude of taxpayers’ responses is substantially considered to be very importance in the formulation of tax and transfer policy (Giertz, 2009). The fundamental analysis on how to see the respond of taxpayers due to any changes in tax rates uses elasticity of labor supply, which estimates the changes of working hours with respect to the changes in tax rates. Because people’s response to a tax change may take several forms, including a labor supply response, elasticity of labor supply must be read carefully, as pertaining only to specific circumstances. Then, the elasticity of taxable income, which was originated by Lindsey (1986), is used and introduced to overcome such restrictions.Using very rich panel data of Indonesian taxpayers from 2007 to 2010, this study generates numerous findings about the elasticity of taxable income. The extent of taxpayers’ response deeply depends on how the secular trend of income is isolated and controlled. Without income control, the elasticity of taxable income is 0.289, while using a 10-spline of log of income, the extent is 0.368. Moreover, the study also uses net income as complement of the core estimation. This study identifies that the elasticity of taxable income in Indonesia is in the range of 0.302-0.368 depending on the income definition applied. The findings confirm with most literature on this subject and closely near to what was specified by Saez, et. al (2010) as “a consensus value.” But it should be underlined that these magnitudes are just in the short run period. This also found that the short run and medium period produce varying magnitudes. The medium run period calculation generates the number of close to zero. It might be due to the existence of income shifting, as stated by Goolsbee (2000). Another argument is myopic phenomenon. As taxpayers only focus on the situation that just happen surroundings them.The difference in the effect highpoints what Slemrod (2001) said that the magnitude of reported income elasticity is not an unchanged parameter; indeed, it is subject to government policy. Moreover, the surroundings of the tax reform and after all may also have influences.  

Experimental Evidence on the Relation between Tax Rates and Compliance: The Effect of Earned vs. Endowed Income

2001 ◽  
Vol 23 (1) ◽  
pp. 75-90 ◽  
Author(s):  
Scott J. Boylan ◽  
Geoffrey B. Sprinkle
Keyword(s):  
Experimental Evidence ◽  
Rate Increase ◽  
Empirical Studies ◽  
Tax Rates ◽  
Tax Rate ◽  
Taxable Income ◽  
Tax Returns ◽  
Compliance Decisions ◽  
Tax Reporting ◽  
Reporting Phase

In this paper, we report the results of an experiment designed to determine whether the manner in which income is obtained (earned vs. endowed) affects the relation between tax rates and taxpayer compliance. Our experiment consisted of an income phase and a tax-reporting phase. In the income phase, participants were either endowed with $20 or were required to earn $20 by performing a one-hour multiplication exercise. In the tax-reporting phase, participants decided how much of their $20 in income to report on their tax returns. Consistent with prior experimental evidence, we find that when income is endowed, participants respond to a tax rate increase by reporting less taxable income. In contrast, but consistent with economic theory and some archival-empirical evidence, we find that when income is earned, participants respond to a tax rate increase by reporting more taxable income. Collectively, the results suggest that income is not a fungible commodity and that tax-payer responses to changes in policy variables such as the tax rate may depend critically on the amount of time and effort required to generate income. Additionally, our results may help explain differences between the results of taxpayer compliance experiments (which typically endow individuals with income) and archival-empirical studies (which use data that typically include earned income) regarding how changes in the tax rate (and other factors) affect taxpayer compliance decisions.

The Impact of the Source of Changes in Marginal Tax Rates on Participation in Individual Retirement Accounts

2002 ◽  
Vol 24 (1) ◽  
pp. 46-59 ◽  
Author(s):  
David H. Eaton
Keyword(s):  
Fixed Effects ◽  
Tax Reform ◽  
Tax Rates ◽  
Tax Rate ◽  
Taxable Income ◽  
Individual Retirement Accounts ◽  
Retirement Accounts ◽  
Marginal Tax Rates ◽  
The Impact ◽  
Participation Decisions

This paper uses a series of two-year panels of tax return data to estimate the effects of two sources of tax rate changes on the participation in Individual Retirement Accounts (IRAs). This paper uses a panel logit approach to control for individual specific fixed effects, which may also influence IRA participation behavior. This paper examines participation during the years of open eligibility for IRAs, as well as examining the impact of the 1986 tax reform on participation. A key finding of this paper is that taxpayers' IRA participation decisions are more sensitive to changes in tax rates due to changes in taxable income than to direct changes in the tax tables.

scholarly journals The elasticity of taxable income in Spain: 1999–2014

SERIEs ◽  
2019 ◽  
Vol 10 (3-4) ◽  
pp. 281-320 ◽  
Author(s):  
Miguel Almunia ◽  
David Lopez-Rodriguez
Keyword(s):  
Estimation Methods ◽  
Tax Rates ◽  
Personal Income Tax ◽  
Capital Income ◽  
Tax Rate ◽  
Taxable Income ◽  
Elasticity Of Taxable Income ◽  
Marginal Tax Rates ◽  
Tax Deductions ◽  
The One

Abstract We study how taxable income responds to changes in marginal tax rates, using as a main source of identifying variation three large reforms to the Spanish personal income tax implemented in the period 1999–2014. The most reliable estimates of the elasticity of taxable income (ETI) with respect to the net-of-tax rate for this period are between 0.45 and 0.64. The ETI is about three times larger for self-employed taxpayers than for employees and larger for business income than for labor and capital income. The elasticity of broad income is smaller, between 0.10 and 0.24, while the elasticity of some tax deductions such as the one for private pension contributions exceeds one. Our estimates are similar across a variety of estimation methods and sample restrictions and also robust to potential biases created by mean reversion and heterogeneous income trends.

scholarly journals Assessment of the international competitiveness of the corporate profit tax in Ukraine

2021 ◽  
Vol 2021 (1) ◽  
pp. 116-127
Author(s):  
Nataliia Frolova ◽  
◽  
Keyword(s):  
Methodological Approach ◽  
Weighted Average ◽  
International Competitiveness ◽  
Oecd Countries ◽  
Tax Rates ◽  
Tax Rate ◽  
Corporate Profit ◽  
Accelerated Depreciation ◽  
International Ranking ◽  
Main Components

The article is devoted to assessing the international competitiveness of the corporate profit tax system based on the approach of the US Tax Foundation, which develops International Tax Competitiveness Index of the corporate profit tax (ICI) and takes into account the level of profit tax rates, cost recovery, tax incentives and complexity of tax law. According to the analysis of the international ranking of OECD countries, Estonia, Latvia, Lithuania, and Hungary had the highest ICIs in 2019-2020. The main factors that have had a positive effect on their competitiveness are the low top marginal income tax rate, unlimited loss carryback and carryforward, no restrictions on the list of assets subject to depreciation, as well as the use of accelerated depreciation, which allows companies to compensate for a larger share of the initial value of assets, LIFO inventory or at least inventory by the weighted average cost method, no Patent Box; no tax credit for R&D, and low corporate profit tax complexity. The calculation of the ICI for Ukraine, based on the approbation of the methodological approach of the Tax Foundation, found that in 2019-2020 Ukraine with a total score of 55.07 took 24th place out of 35 OECD countries. The author characterizes the main components of Ukrainian corporate profit taxation in terms of their impact on international competitiveness; in addition, ways to increase ICI are substantiated.

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