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The Responsiveness of Taxable Income to Changes in Marginal Tax Rates in Barbados

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  • Moore, Winston

Abstract

Since 2003 policymakers in Barbados have implemented a series of tax reforms that have lowered both basic as well as marginal income tax rates. These changes have more than likely induced taxpayers to alter their behaviour in order to affect their reported taxable income. This paper employs an annual sample of 3,000 individual taxpayers between 2003 and 2006 to investigate the sensitivity of taxable income to changes in marginal tax rates. The empirical approach adopted also allows the researcher to provided evidence on the variation in taxable income by gender and income group. The paper finds that for every 1 percent rise in the marginal tax rate, taxable income decreases by 0.2 percent. Further disaggregation of the database also revealed that a strong negative labour supply effect causes the elasticity for low-income taxpayers to rise to 0.9, while females tend to be more responsive to changes in marginal taxes relative to males.

Suggested Citation

  • Moore, Winston, 2008. "The Responsiveness of Taxable Income to Changes in Marginal Tax Rates in Barbados," MPRA Paper 21583, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:21583
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    References listed on IDEAS

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    More about this item

    Keywords

    Taxable income; Marginal tax rates; Tax avoidance;
    All these keywords.

    JEL classification:

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

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