Zurück zum Heft
Cover von: Estimating the Elasticity of Taxable Income When Earnings Responses Are Sluggish
Trine Engh Vattø

Estimating the Elasticity of Taxable Income When Earnings Responses Are Sluggish

Rubrik: Articles
Jahrgang 76 (2020) / Heft 4, S. 329-369 (41)
Publiziert 23.11.2020
DOI 10.1628/fa-2020-0012
Veröffentlicht auf Englisch.
  • Artikel PDF
  • lieferbar
  • 10.1628/fa-2020-0012
Beschreibung
Estimates of the elasticity of taxable income (ETI) are conventionally obtained by stacking three-year overlapping differences in the estimation. This means that the ETI estimate is an average of first-, second-, and third-year effects. The present paper suggests that if gradual adjustment can be expected, the analyst should consider estimating the ETI by a dynamic panel data model. When Norwegian income tax return data for wage earners over a 14-year period (1995–2008) are used in the estimation, an ETI estimate of 0.15 is obtained from the dynamic specification, compared to 0.11 by the conventional approach. Importantly, the conventional approach fails to produce a long-term elasticity estimate by increasing the time span of each difference.