Estimating the Elasticity of Broad Income for High-Income Taxpayers
71 Pages Posted: 14 Oct 2016
Date Written: October 2016
This paper precisely estimates the elasticity of broad income (EBI) with respect to the marginal net-of-tax rate for high-income taxpayers. We study the introduction of a new top income tax bracket in 2013 using a large panel of high-income taxpayers drawn from administrative tax records. Our estimation strategy — inverse probability weighting — takes into account the tremendous income volatility experienced by high-income taxpayers. We obtain an intent-to-treat (ITT) EBI of 0.013. After rescaling to account for taxpayers crossing the top income tax bracket threshold, we obtain a treatment-effect-on-the-treated elasticity that is bounded below by the ITT estimate and above by 0.034.
Keywords: Elasticity of Broad Income, Elasticity of Taxable Income, Personal Income Tax
JEL Classification: H21, H24
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