Estimating the Elasticity of Broad Income for High-Income Taxpayers

71 Pages Posted: 14 Oct 2016

See all articles by Laura Kawano

Laura Kawano

University of Michigan at Ann Arbor

Caroline Weber

University of Oregon - Department of Economics

Andrew Whitten

U.S. Department of the Treasury - Office of Tax Analysis (OTA)

Date Written: October 2016

Abstract

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

Suggested Citation

Kawano, Laura and Weber, Caroline and Whitten, Andrew, Estimating the Elasticity of Broad Income for High-Income Taxpayers (October 2016). Available at SSRN: https://ssrn.com/abstract=2852048 or http://dx.doi.org/10.2139/ssrn.2852048

Laura Kawano

University of Michigan at Ann Arbor ( email )

Caroline Weber (Contact Author)

University of Oregon - Department of Economics ( email )

Eugene, OR 97403
United States

Andrew Whitten

U.S. Department of the Treasury - Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave., N.W.
Washington, DC 22203
United States

HOME PAGE: http://rawhitten.com

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