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The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act

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  • Feldstein, Martin

Abstract

This paper uses a Treasury Department panel of more than 4,000 taxpayers to estimate the sensitivity of taxable income to changes in tax rates based on a comparison of the tax returns of the same individual taxpayers before and after the 1986 tax reform. The analysis emphasizes that the response of taxable income involves much more than a change in the traditional measures of labor supply. The evidence shows an elasticity of taxable income with respect to the marginal net-of-tax rate that is at least one and that could be substantially higher. The implications for recent tax rate changes are discussed. Copyright 1995 by University of Chicago Press.

Suggested Citation

  • 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.
    • Handle: RePEc:ucp:jpolec:v:103:y:1995:i:3:p:551-72
    DOI: 10.1086/261994
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    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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