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Income Responses to Tax Changes--Evidence From the Norwegian Tax Reform

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  • Aarbu, Karl O.
  • Thoresen, Thor O.

Abstract

Several studies, conducted on U.S. data, have found rather strong income responses to changes in net-of-tax rates when treating tax reforms as "natural experiments" and applying the differences-of-differences estimator. Like the U.S. Tax Reform Act of 1986, the Norwegian tax reform of 1992 entailed substantial increases in the net-of-tax rate for high-income earners. This paper provides measures of the elasticity of taxable income with respect to these tax rate changes. We control for the impact of other tax changes and several non-tax factors on income growth. Our estimates of the elasticity of taxable income with respect to the net-of-tax rate range between -0.6 and 0.2, substantially lower than similar estimates from analyses on U.S. data.

Suggested Citation

  • Aarbu, Karl O. & Thoresen, Thor O., 2001. "Income Responses to Tax Changes--Evidence From the Norwegian Tax Reform," National Tax Journal, National Tax Association;National Tax Journal, vol. 54(2), pages 319-338, June.
    • Handle: RePEc:ntj:journl:v:54:y:2001:i:2:p:319-38
    DOI: 10.17310/ntj.2001.2.06
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    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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