Working Paper: NBER ID: w7367
Authors: Emmanuel Saez
Abstract: This paper uses a panel of individual tax returns and the `bracket creep' as source of tax rate variation to construct instrumental variables estimates of the sensitivity of income to changes in tax rates. From 1979 to 1981, the US income tax schedule was fixed in nominal terms while inflation was high (around 10%). This produced a real change in tax rate schedules. Taxpayers near the top-end of a tax bracket were more likely to creep to a higher bracket and thus experience a rise in marginal rates the following year than the other taxpayers. Compensated elasticities can be estimated by comparing the differences in changes in income between taxpayers close to the top-end of a tax bracket to the other taxpayers. These estimates, based on comparisons between very similar groups, are robust to underlying changes in the income distribution, such as a rise in inequality. The elasticities found are higher than those derived in labor supply studies but smaller than those found previously with the same kind of tax returns data.
Keywords: No keywords provided
JEL Codes: H31; J22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bracket creep (F32) | marginal tax rates (H29) |
| marginal tax rates (H29) | income levels (J31) |
| bracket creep (F32) | income levels (J31) |