IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/1761.html
   My bibliography  Save this paper

Estimating the Revenue Maximizing Top Personal Tax Rate

Author

Listed:
  • Lawrence B. Lindsey

Abstract

The idea that marginal tax rates and tax revenue may be inversely related is at least as old as Adam Smith's Wealth of Nations. The emergence of the "Laffer Curve" in the modern public debate on the subject has rekindled interestin this idea. The present paper uses data from the 1982 tax rate reductions to estimate the revenue maximizing top personal tax rate.This paper also examines the components of taxable income to consider the sources of taxpayer response to changes in marginal tax rates. The National Bureau of Economic Research TAXSIM model was used extensively in this study to estimate the magnitude of taxpayer response to tax rate changes.

Suggested Citation

  • Lawrence B. Lindsey, 1985. "Estimating the Revenue Maximizing Top Personal Tax Rate," NBER Working Papers 1761, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1761
    Note: PE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w1761.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Lawrence B. Lindsey, 1981. "Is the Maximum Tax on Earned Income Effective?," NBER Working Papers 0613, National Bureau of Economic Research, Inc.
    2. Don Fullerton & Roger H. Gordon, 1983. "A Reexamination of Tax Distortions in General Equilibrium Models," NBER Chapters, in: Behavioral Simulation Methods in Tax Policy Analysis, pages 369-426, National Bureau of Economic Research, Inc.
    3. Anonymous, 1965. "Organization for Economic Cooperation and Development," International Organization, Cambridge University Press, vol. 19(1), pages 150-153, January.
    4. Buchanan, James M & Lee, Dwight R, 1982. "Politics, Time, and the Laffer Curve," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 816-819, August.
    5. Martin Feldstein & Joel Slemrod & Shlomo Yitzhaki, 1984. "The Effects of Taxation on the Selling of Corporate Stock and the Realization of Capital Gains: Reply," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 99(1), pages 111-120.
    6. Boskin, Michael J, 1978. "Taxation, Saving, and the Rate of Interest," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages 3-27, April.
    7. Feldstein, Martin S, 1978. "The Rate of Return, Taxation and Personal Savings," Economic Journal, Royal Economic Society, vol. 88(351), pages 482-487, September.
    8. Fullerton, Don, et al, 1981. "Corporate Tax Integration in the United States: A General Equilibrium Approach," American Economic Review, American Economic Association, vol. 71(4), pages 677-691, September.
    9. Grieson, Ronald E., 1980. "Theoretical analysis and empirical measurements of the effects of the Philadelphia income tax," Journal of Urban Economics, Elsevier, vol. 8(1), pages 123-137, July.
    10. Lawrence B. Lindsey, 1985. "The Effect of the Treasury Proposal on Charitable Giving: A Comparison of Constant and Variable Elasticity Models," NBER Working Papers 1592, National Bureau of Economic Research, Inc.
    11. Fries, Albert & Hutton, John P & Lambert, Peter J, 1982. "The Elasticity of the U.S. Individual Income Tax: Its Calculation, Determinants and Behavior," The Review of Economics and Statistics, MIT Press, vol. 64(1), pages 147-151, February.
    12. Metcalf, Charles E, 1969. "The Size Distribution of Personal Income during the Business Cycle," American Economic Review, American Economic Association, vol. 59(4), pages 657-668, Part I Se.
    13. 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.
    14. repec:bla:revinw:v:25:y:1979:i:4:p:377-92 is not listed on IDEAS
    15. 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.
    16. 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.
    17. Daniel R. Feenberg & Harvey S. Rosen, 1983. "Alternative Tax Treatments of the Family: Simulation Methodology and Results," NBER Chapters, in: Behavioral Simulation Methods in Tax Policy Analysis, pages 7-46, National Bureau of Economic Research, Inc.
    18. Edward C. Budd, 1971. "The Creation Of A Microdata File For Estimating The Size Distribution Of Income," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 17(4), pages 317-333, December.
    19. Michael J. Boskin, 1978. "Taxation, Saving, and the Rate of Interest," NBER Chapters, in: Research in Taxation, pages 3-27, National Bureau of Economic Research, Inc.
    20. Charles L. Ballard & Don Fullerton & John B. Shoven & John Whalley, 1985. "General Equilibrium Analysis of Tax Policies," NBER Chapters, in: A General Equilibrium Model for Tax Policy Evaluation, pages 6-24, National Bureau of Economic Research, Inc.
    21. Fullerton, Don, 1982. "On the possibility of an inverse relationship between tax rates and government revenues," Journal of Public Economics, Elsevier, vol. 19(1), pages 3-22, October.
    22. Browning, Edgar K & Johnson, William R, 1984. "The Trade-Off between Equality and Efficiency," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 175-203, April.
    23. Joseph J. Minarik, 1979. "The Size Distribution Of Income During Inflation," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 25(4), pages 377-391, December.
    24. Richard A. Musgrave & Karl E. Case & Herman Leonard, 1974. "The Distribution of Fiscal Burdens and Benefits," Public Finance Review, , vol. 2(3), pages 259-311, July.
    25. 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.
    26. N. Gregory Mankiw & Lawrence H. Summers, 1984. "Are Tax Cuts Really Expansionary?," NBER Working Papers 1443, National Bureau of Economic Research, Inc.
    27. Burtless, Gary & Hausman, Jerry A, 1978. "The Effect of Taxation on Labor Supply: Evaluating the Gary Negative Income Tax Experiments," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 1103-1130, December.
    28. Victor A. Canto & Douglas H. Joines & Arthur B. Laffer, 1978. "An income expenditure version of the wedge model," Proceedings, Federal Reserve Bank of San Francisco, issue 2, pages 27-62.
    29. Joel Slemrod, 1978. "The Lock-In Effect of the Capital Gains Tax: Some Time Series Evidence," NBER Working Papers 0257, National Bureau of Economic Research, Inc.
    30. repec:bla:revinw:v:17:y:1971:i:4:p:317-33 is not listed on IDEAS
    31. Hausman, Jerry A, 1981. "Exact Consumer's Surplus and Deadweight Loss," American Economic Review, American Economic Association, vol. 71(4), pages 662-676, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hansson, Åsa, 2004. "Taxpayers Responsiveness to Tax Rate Changes and Implications for the Cost of Taxation," Working Papers 2004:5, Lund University, Department of Economics.
    2. Mark Rider, 2006. "The Effect of Personal Income Tax Rates on Individual and Business Decisions - A Review of the Evidence," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0615, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    3. Sanz-Sanz, José Félix, 2022. "A full-fledged analytical model for the Laffer curve in personal income taxation," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 795-811.
    4. Lawrence B. Lindsey, 1985. "Taxpayer Behavior and the Distribution of the 1982 Tax Cut," NBER Working Papers 1760, National Bureau of Economic Research, Inc.
    5. Stanisław Cichocki & Ryszard Kokoszczyński, 2016. "The evolution of the Laffer curve as a framework for studying tax evasion: from simple theoretical to DSGE models," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 45.

    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. Lawrence B. Lindsey, 1985. "Taxpayer Behavior and the Distribution of the 1982 Tax Cut," NBER Working Papers 1760, National Bureau of Economic Research, Inc.
    2. Lawrence B. Lindsey, 1986. "Individual Taxpayer Response to Tax Cuts 1982-1984 with Implications forthe Revenue Maximizing Tax Rate," NBER Working Papers 2069, National Bureau of Economic Research, Inc.
    3. Charles Becker & Don Fullerton, 1980. "Income Tax Incentives to Promote Saving," NBER Working Papers 0487, National Bureau of Economic Research, Inc.
    4. 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.
    5. Bruno Théret & Didier Uri, 1988. "La courbe de Laffer dix ans après : un essai de bilan critique," Revue Économique, Programme National Persée, vol. 39(4), pages 753-808.
    6. Daniel R. Feenberg, 1982. "The Tax Treatment of Married Couples and the 1981 Tax Law," NBER Working Papers 0872, National Bureau of Economic Research, Inc.
    7. Don Fullerton, 1983. "Which Effective Tax Rate?," NBER Working Papers 1123, National Bureau of Economic Research, Inc.
    8. Pecorino, Paul, 1995. "Tax rates and tax revenues in a model of growth through human capital accumulation," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 527-539, December.
    9. Don Fullerton, 1983. "Transition Losses of Partially Mobile Industry-Specific Capital," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(1), pages 107-125.
    10. Hausman, Jerry A & Poterba, James M, 1987. "Household Behavior and the Tax Reform Act of 1986," Journal of Economic Perspectives, American Economic Association, vol. 1(1), pages 101-119, Summer.
    11. 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.
    12. Joel Slemrod & William Shobe, 1990. "The Tax Elasticity of Capital Gains Realizations: Evidence from a Panel of Taxpayers," NBER Working Papers 3237, National Bureau of Economic Research, Inc.
    13. Fullerton, Don & Henderson, Yolanda Kodrzycki, 1985. "Long-run Effects of the Accelerated Cost Recovery System," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 363-372, August.
    14. Fullerton, Don & Lyon, Andrew B., 1986. "Uncertain parameter values and the choice among policy options," Journal of Public Economics, Elsevier, vol. 30(1), pages 109-116, June.
    15. Hubbard, R. Glenn & Skinner, Jonathan & Zeldes, Stephen P., 1994. "The importance of precautionary motives in explaining individual and aggregate saving," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 40(1), pages 59-125, June.
    16. 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.
    17. Benjamin M. Friedman, 1981. "Financing Capital Formation in the 1980s: Issues for Public Policy," NBER Working Papers 0745, National Bureau of Economic Research, Inc.
    18. Mervyn A. King, 1980. "Savings and Taxation," NBER Working Papers 0428, National Bureau of Economic Research, Inc.
    19. Benjamin Russo, 2009. "Innovation and the Long‐Run Elasticity of Total Taxable Income," Southern Economic Journal, John Wiley & Sons, vol. 75(3), pages 798-828, January.
    20. Smyth, Russell, 2014. "Myths and Misconceptions in the Tax Mix Debate," MPRA Paper 59271, University Library of Munich, Germany.

    More about this item

    Statistics

    Access and download statistics

    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:nbr:nberwo:1761. 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: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    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.