Marginal Tax Rates and Income: New Time Series Evidence
By Karel Mertens, J. M. Olea. 2013
178 citations recorded by the source corpus.
Using new narrative measures of exogenous variation in marginal tax rates associated with postwar tax reforms in the US, this study estimates short run elasticities of taxable income of around 1.2 based on time series from 1946 to 2012. Elasticities are larger in the top 1% of the income distribution but are also positive and statistically significant for other income groups. Previous time series studies of tax returns data have found little evidence for income responses to taxes outside the top of the income distribution. The different results in this study arise because of additional efforts to account for dynamics, expectations and especially the endogeneity of tax policy decisions. Marginal rate cuts lead to increases in real GDP and declines in unemployment. This study also presents evidence that the responses are to marginal rather than average tax rates. Counterfactual tax cuts targeting the top 1% alone have positive effects on economic activity and incomes outside of the top 1% but increase inequality in pre-tax incomes. The data and methodology in this study do not permit any conclusions about the impact of tax rate changes targeting lower income taxpayers alone.
View Paper: https://www.semanticscholar.org/paper/65cf8bcf106c6ee71ff6382ee6a50e5b2316ebc5
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Citations in the corpus
- Inference in Structural Vector Autoregressions identified with an external instrument (2020, background): “The idea that these exogenous variables can serve as instruments goes back at least as far as Romer and Romer (1989) (see the comments by Blanchard and Sims in the published discussion) and has been used in distributed lag regressions (e.”
- The evolution of wealth inequality over half a century: The role of taxes, transfers and technology (2016, methodology): “The data values are taken from Saez and Zucman (2014) and Keister and Moller (2000) for the wealth distribution, and from Piketty and Saez (2003) for the income and earnings shares.”
- Heterogeneity and Government Revenues: Higher Taxes at the Top? (2014, unknown): “In this area, the recent work by Mertens (2013) is particularly relevant in light of our objectives and findings. This author finds substantial responses to changes in marginal tax rates across all income levels.(3) Finally, our paper is naturally related with recent work on the Laffer curve in dyna”