Working Paper Series, FIEF - Trade Union Institute for Economic Research
Taxable Income Responses to Tax Changes - A Panel Analysis of the 1990/91 Swedish Reform
Abstract: The elasticity of taxable income indicates the effects on
income from a change in the marginal tax rate. In a number of studies on
U.S. data rather strong effects have been found, although estimates seem
lower in more recent papers. Studies based on data from other countries are
only a few and indicate lower effects. A difference-in-differences approach
utilising differences in tax changes is the standard approach for analysis.
Here a large Swedish tax reform is employed. Estimated effects of a tax cut
are modest, in the interval 0.2 to 0.4 at the most. Problems of income
variables and income groups for the analysis are extensively examined.
According to an extended model there is a positive income effect of the tax
change, implying a difference between the compensated and the uncompensated
elasticity, contrary to earlier results for the U. S.
Keywords: Tax reform; taxable income elasticity; difference in differences; (follow links to similar papers)
JEL-Codes: H21; H24; (follow links to similar papers)
30 pages, August 7, 2002
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