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Do Payroll Taxes Matter in Estimating Taxable Income Elasticities?

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  • David H. Eaton

    (Murray State University, Kentucky)

Abstract

A growing literature examines the responsiveness of taxable income to changes in federal income tax rates. The literature has found evidence of small but consistent taxable income elasticities to changes in federal tax rates. This article extends the analysis to examine the responsiveness of taxable income and labor income measures to changes in payroll tax rates. Using data to exploit the change in payroll taxes from 1979 to 1981, this article finds that taxpayers respond in the same way to changes in payroll taxes and individual income taxes.

Suggested Citation

  • David H. Eaton, 2008. "Do Payroll Taxes Matter in Estimating Taxable Income Elasticities?," Public Finance Review, , vol. 36(6), pages 748-762, November.
    • Handle: RePEc:sae:pubfin:v:36:y:2008:i:6:p:748-762
    DOI: 10.1177/1091142107312728
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    References listed on IDEAS

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    1. Seth H. Giertz, 2004. "Recent Literature on Taxable-Income Elasticities: Technical Paper 2004-16," Working Papers 16189, Congressional Budget Office.
    2. Gerald Auten & Robert Carroll, 1999. "The Effect Of Income Taxes On Household Income," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 681-693, November.
    3. Saez, Emmanuel, 2003. "The effect of marginal tax rates on income: a panel study of 'bracket creep'," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 1231-1258, May.
    4. Slemrod, Joel, 1998. "Methodological Issues in Measuring and Interpreting Taxable Income Elasticities," National Tax Journal, National Tax Association;National Tax Journal, vol. 51(4), pages 773-788, December.
    5. Gruber, Jon & Saez, Emmanuel, 2002. "The elasticity of taxable income: evidence and implications," Journal of Public Economics, Elsevier, vol. 84(1), pages 1-32, April.
    6. Slemrod, Joel, 1998. "Methodological Issues in Measuring and Interpreting Taxable Income Elasticities," National Tax Journal, National Tax Association, vol. 51(n. 4), pages 773-88, December.
    7. Giertz, Seth, 2004. "Recent Literature on Taxable-Income Elasticities," MPRA Paper 16159, University Library of Munich, Germany.
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    Keywords

    taxable income elasticity; payroll taxes;

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