Estimating the Elasticity of Taxable Income When Earnings Responses Are Sluggish - 10.1628/fa-2020-0012 - Mohr Siebeck
Economics

Trine Engh Vattø

Estimating the Elasticity of Taxable Income When Earnings Responses Are Sluggish

Section: Articles
FinanzArchiv (FA)

Volume 76 () / Issue 4, pp. 329-369 (41)
Published 23.11.2020

41,00 € including VAT
article PDF
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.
Authors/Editors

Trine Engh Vattø No current data available.