IDEAS home Printed from https://ideas.repec.org/a/sae/pubfin/v38y2010i3p321-345.html
   My bibliography  Save this article

The Effect of Changes in the Tax Structure on the Reported Income of High-Income Individuals

Author

Listed:
  • Hernan Acuna

    (Planning Ministry of Chile, Santiago, Chile)

  • Randall G. Holcombe

    (Florida State University, Tallahassee, FL, USA, holcombe@fsu.edu)

Abstract

Tax incidence theory shows how taxes initially placed on one group can be shifted and ultimately borne by others. This paper shows that income of high-income taxpayers is affected both by the rates they face and by the rates faced by non-high-income taxpayers. The income of high-income taxpayers rises when they face lower tax rates, but also rises in response to lower tax rates imposed on non-high-income taxpayers. While high-income responses to own statutory tax changes may be explained—at least partially—by their making a ‘‘smart use of the tax code,’’ high-income responses to tax changes on non-high income individuals indicate the presence of structural effects of tax changes.

Suggested Citation

  • Hernan Acuna & Randall G. Holcombe, 2010. "The Effect of Changes in the Tax Structure on the Reported Income of High-Income Individuals," Public Finance Review, , vol. 38(3), pages 321-345, May.
    • Handle: RePEc:sae:pubfin:v:38:y:2010:i:3:p:321-345
    DOI: 10.1177/1091142109358705
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/1091142109358705
    Download Restriction: no
    File URL: https://libkey.io/10.1177/1091142109358705?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Robert A. Moffitt & Mark Wilhelm, 1998. "Taxation and the Labor Supply: Decisions of the Affluent," NBER Working Papers 6621, National Bureau of Economic Research, Inc.
    2. Kotlikoff, Laurence J, 1984. "Taxation and Savings: A Neoclassical Perspective," Journal of Economic Literature, American Economic Association, vol. 22(4), pages 1576-1629, December.
    3. 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.
    4. Martin Feldstein & Joel Slemrod & Shlomo Yitzhaki, 1980. "The Effects of Taxation on the Selling of Corporate Stock and the Realization of Capital Gains," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 94(4), pages 777-791.
    5. Auerbach, Alan J, 1991. "Retrospective Capital Gains Taxation," American Economic Review, American Economic Association, vol. 81(1), pages 167-178, March.
    6. Edward C. Prescott, 2004. "Why do Americans work so much more than Europeans?," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 28(Jul), pages 2-13.
    7. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695, Elsevier.
    8. Austan Goolsbee, 1999. "Evidence on the High-Income Laffer Curve from Six Decades of Tax Reform," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(2), pages 1-64.
    9. Austan Goolsbee, 2000. "What Happens When You Tax the Rich? Evidence from Executive Compensation," Journal of Political Economy, University of Chicago Press, vol. 108(2), pages 352-378, April.
    10. Clotfelter, Charles T, 1983. "Tax-Induced Distortions and the Business-Pleasure Borderline: The Case of Travel and Entertainment," American Economic Review, American Economic Association, vol. 73(5), pages 1053-1065, December.
    11. 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.
    12. Hausman, Jerry A., 1985. "Taxes and labor supply," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 4, pages 213-263, Elsevier.
    13. Hall, Robert E, 1988. "Intertemporal Substitution in Consumption," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 339-357, April.
    14. repec:eee:labchp:v:1:y:1986:i:c:p:3-102 is not listed on IDEAS
    15. Jonathan Gruber & James M. Poterba, 1993. "Tax Incentives and the Decision to Purchase Health Insurance: Evidence from the Self-Employed," NBER Working Papers 4435, National Bureau of Economic Research, Inc.
    16. Kopczuk, Wojciech, 2005. "Tax bases, tax rates and the elasticity of reported income," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2093-2119, December.
    17. Summers, Lawrence H, 1984. "The After-Tax Rate of Return Affects Private Savings," American Economic Review, American Economic Association, vol. 74(2), pages 249-253, May.
    18. repec:hoo:wpaper:e-90-11 is not listed on IDEAS
    19. Heckman, James J, 1993. "What Has Been Learned about Labor Supply in the Past Twenty Years?," American Economic Review, American Economic Association, vol. 83(2), pages 116-121, May.
    20. Mroz, Thomas A, 1987. "The Sensitivity of an Empirical Model of Married Women's Hours of Work to Economic and Statistical Assumptions," Econometrica, Econometric Society, vol. 55(4), pages 765-799, July.
    21. Rosen, Harvey S, 1976. "Taxes in a Labor Supply Model with Joint Wage-Hours Determination," Econometrica, Econometric Society, vol. 44(3), pages 485-507, May.
    22. Robert K. Triest, 1990. "The Effect of Income Taxation on Labor Supply in the United States," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 491-516.
    23. Feldstein, Martin & Clotfelter, Charles, 1976. "Tax incentives and charitable contributions in the United States : A microeconometric analysis," Journal of Public Economics, Elsevier, vol. 5(1-2), pages 1-26.
    24. Thomas MaCurdy & David Green & Harry Paarsch, 1990. "Assessing Empirical Approaches for Analyzing Taxes and Labor Supply," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 415-490.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Soren Blomquist & Anil Kumar & Che-Yuan Liang & Whitney K. Newey, 2022. "Nonlinear Budget Set Regressions for the Random Utility Model," Working Papers 2219, Federal Reserve Bank of Dallas.
    3. Kumar, Anil, 2008. "Labor supply, deadweight loss and tax reform act of 1986: A nonparametric evaluation using panel data," Journal of Public Economics, Elsevier, vol. 92(1-2), pages 236-253, February.
    4. Seth H. Giertz, 2004. "Recent Literature on Taxable-Income Elasticities: Technical Paper 2004-16," Working Papers 16189, Congressional Budget Office.
    5. Emmanuel Saez & Joel Slemrod & Seth H. Giertz, 2012. "The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 50(1), pages 3-50, March.
    6. Raj Chetty, 2006. "A New Method of Estimating Risk Aversion," American Economic Review, American Economic Association, vol. 96(5), pages 1821-1834, December.
    7. Gagné, Robert & Nadeau, Jean-François & Vaillancourt, François, 2004. "Réactions des contribuables aux variations des taux marginaux d’impôt : une étude portant sur des données de panel au Canada," L'Actualité Economique, Société Canadienne de Science Economique, vol. 80(2), pages 383-404, Juin-Sept.
    8. Robert Gagné & Jean-François Nadeau & François Vaillancourt, 2000. "Taxpayers' Response to Tax Rate Changes: A Canadian Panel Study," CIRANO Working Papers 2000s-59, CIRANO.
    9. Anil Kumar, 2012. "Nonparametric estimation of the impact of taxes on female labor supply," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 27(3), pages 415-439, April.
    10. Olivier Bargain & Kristian Orsini & Andreas Peichl, 2014. "Comparing Labor Supply Elasticities in Europe and the United States: New Results," Journal of Human Resources, University of Wisconsin Press, vol. 49(3), pages 723-838.
    11. Kristoffer Berg & Thor O. Thoresen, 2020. "Problematic response margins in the estimation of the elasticity of taxable income," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(3), pages 721-752, June.
    12. Feldstein, Martin, 1995. "The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 551-572, June.
    13. Bessho, Shun-ichiro & Hayashi, Masayoshi, 2011. "Labor supply response and preferences specification: Estimates for prime-age males in Japan," Journal of Asian Economics, Elsevier, vol. 22(5), pages 398-411, October.
    14. Adam Looney & Monica Singhal, 2005. "The effect of anticipated tax changes on intertemporal labor supply and the realization of taxable income," Finance and Economics Discussion Series 2005-44, Board of Governors of the Federal Reserve System (U.S.).
    15. Carina Neisser, 2021. "The Elasticity of Taxable Income: A Meta-Regression Analysis [The top 1% in international and historical perspective]," The Economic Journal, Royal Economic Society, vol. 131(640), pages 3365-3391.
    16. Emmanuel Saez, 2004. "Reported Incomes and Marginal Tax Rates, 1960–2000: Evidence and Policy Implications," NBER Chapters, in: Tax Policy and the Economy, Volume 18, pages 117-174, National Bureau of Economic Research, Inc.
    17. Hans Schytte Sigaard, 2022. "Labor Supply Responsiveness to Tax Reforms," Economics Working Papers 2022-04, Department of Economics and Business Economics, Aarhus University.
    18. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695, Elsevier.
    19. Schaefer, Thilo & Peichl, Andreas & Fuest, Clemens, 2007. "Is a Flat Tax politically feasible in a grown-up Welfare State?," FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 07-6, University of Cologne, FiFo Institute for Public Economics.
    20. Robert McClelland & Shannon Mok, 2012. "A Review of Recent Research on Labor Supply Elasticities: Working Paper 2012-12," Working Papers 43675, Congressional Budget Office.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:pubfin:v:38:y:2010:i:3:p:321-345. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.