Publication:
Reported gross income and marginal tax rates: estimation of the behavioural reactions of Spanish taxpayers

Research Projects
Organizational Units
Journal Issue
Abstract
This article estimates, for the Spanish personal income tax, the elasticity of reported gross income to marginal tax rates. The identification of this elasticity has been performed using the reform approved by Law 35/2006, which came into force in January 2007. The elasticities obtained suggest the existence of important efficiency costs, with significant regional differences. The average elasticity estimated for Spain as a whole is 0.676. However, this elasticity is highly dispersed throughout the Spanish administrative regions, which indicates the unequal power of distortion of the tax. Thus, households whose principal source of income is salary display an elasticity of 0.337, compared to 0.682 for households whose main income source comes from business or savings. Lastly, a positive correlation is also detected between elasticity and income level: an elasticity of 3.6 is reached for taxpayers with an annual gross income exceeding 100 000€.
Description
UCM subjects
Keywords
Citation
Aarbu, K. and Thoresen, T. (2001) Income responses to tax changes: evidence from the Norwegian tax reform, National Tax Journal, 54, 319–34. Atkinson, A. B. and Leigh, A. (2008) Top incomes in New Zealand 1921–2005: understanding the effects of marginal tax rates, migration threat, and the macroeconomy, Review of Income and Wealth, 54, 149–65. doi:10.1111/j.1475-4991.2008.00268.x Auten, G. and Carroll, R. (1999) The effect of income taxes on household income, Review of Economics and Statistics, 81, 681–93. doi:10.1162/003465399558409 Auten, G., Carroll, R. and Gee, G. (2008) The 2001 and 2003 tax rate reductions: an overview and estimate of the taxable income response, National Tax Journal, 61, 345–64. Bakos, P., Benczúr, P. and Benedek, D. (2008) The elasticity of taxable income: estimates and flat tax predictions using the Hungarian tax changes in 2005, MNB Working Paper, 2008/7, Magyar Nemzeti Bank, Budapest. Blomquist, S. and Selin, H. (2010) Hourly wage rate and taxable labor income responsiveness to changes in marginal tax rates, Journal of Public Economics, 94, 878–89. doi:10.1016/j.jpubeco.2010.08.001 Brewer, M., Saez, E. and Shephard, A. (2010) Meanstesting and tax rates on earnings, in Dimensions of Tax Design: the Mirrlees Review, Mirrlees, J. (Ed), Institute for Fiscal Studies, London, pp. 90–173. Carey, S., Creedy, J., Gemmell, N. et al. (2013) Regression estimates of the elasticity of taxable income and the choice of instrument, New Zealand Treasury Working Paper 13/08, New Zealand Treasury, Wellington. Carroll, R. (1998) Do taxpayers really respond to changes in tax rates? Evidence from the 1993 Act, U.S. Department of the Treasury Office of Tax Analysis Working Paper 79, U.S. Treasury Department, Washington, DC. Claus, I., Creedy, J. and Teng, J. (2012) The elasticity of taxable income in New Zealand, Fiscal Studies, 33, 287–303. doi:10.1111/j.1475-5890.2012.00162.x Creedy, J. (2010) The elasticity of taxable income: an introduction and some basic analytics, Public Finance and Management, 10, 556–89. Feldstein, M. (1995) The effect of marginal tax rates on taxable income: a panel study of the 1986 Tax Reform Act, Journal of Political Economy, 103, 551–72. doi:10.1086/261994 Feldstein, M. (1999) Tax avoidance and the deadweight loss of the income tax, Review of Economics and Statistics, 81, 674–80. doi:10.1162/003465399558391 Feldstein, M. (2008) Effects of taxes on economic behavior, National Tax Journal, LXI, 131–39. Giertz, S. (2004). Recent literature on taxable income elasticities, Technical Paper 2004–16, Congressional Budget Office, Washington, DC. Giertz, S. (2007) The elasticity of taxable income over the 1980s and 1990s, National Tax Journal, 60, 743–68. Giertz, S. (2009) The elasticity of taxable income: influences on economic efficiency and tax revenues, and implications for tax policy, in Tax Policy Lessons from the 2000s, Viard, A. D. (Ed), AEI Press, Washington, DC, pp. 101–36. Giertz, S. H. (2010) The elasticity of taxable income during the 1990s: new estimates and sensitivity analyses, Southern Economic Journal, 77, 406–33. doi:10.4284/sej.2010.77.2.406 Goolsbee, A. (2000) What happens when you tax the rich? Evidence from executive compensation, Journal of Political Economy, 108, 352–78. doi:10.1086/262122 Gottfried, P. and Schellhorn, H. (2004) Empirical evidence on the effects of marginal tax rates on income: the German case, Institut für Angewandte Wirtschaftsforschung Discussion Paper 15, Institut für Angewandte Wirtschaftsforschung, Tübingen. Gottfried, P. and Witczak, D. (2009) The responses of taxable income induced by tax cuts: empirical evidence from the German taxpayer panel, Institut für AngewandteWirtschaftsforschung Discussion Paper 57, Institut für Angewandte Wirtschaftsforschung, Tübingen. Gruber, J. and Saez, E. (2002) The elasticity of taxable income: evidence and implications, Journal of Public Economics, 84, 1–32. doi:10.1016/S0047-2727(01)00085-8 Hansson, Å. (2007) Taxpayers’ responsiveness to tax rate changes and implications for the cost of taxation in Sweden, International Tax and Public Finance, 14,563–82. doi:10.1007/s10797-006-9007-7 Heim, B. T. (2009) The effect of recent tax changes on taxable income: evidence from a new panel of tax returns, Journal of Policy Analysis and Management, 28, 147–63. doi:10.1002/pam.20406 Holmlund, B. and Söderström, M. (2011) Estimating dynamic income responses to tax reform, The B.E. Journal of Economic Analysis & Policy, 11, Article 71. doi:10.2202/1935-1682.2891 Keane, M. P. (2011) Labor supply and taxes: a survey, Journal of Economic Literature, 49, 961–1075. doi:10.1257/jel.49.4.961 Kleven, H. J., Knudsen, M. B., Kreiner, C. T. et al. (2011) Unwilling or unable to cheat? Evidence from a Tax audit experiment in Denmark, Econometrica, 79, 651–92. doi:10.3982/ECTA9113 Kleven, H. J. and Schultz, E. A. (forthcoming) Estimating taxable income responses using Danish tax reforms, American Economic Journal: Economic Policy. Kopczuk,W. (2005) Tax bases, tax rates and the elasticity of reported income, Journal of Public Economics, 89, 2093–119. doi:10.1016/j.jpubeco.2004.12.005 Lindsey, L. B. (1987) Individual taxpayer response to tax cuts: 1982–1984, with implications for the revenue maximizing tax rates, Journal of Public Economics, 33, 173–206. doi:10.1016/0047-2727(87)90073-9 Moffitt, R. andWilhelm, M. (2000) Taxation and the labor supply decisions of the affluent, in Does Atlas Shrug? The Economic Consequences of Taxing the Rich, Slemrod, J. (Ed), Russell Sage Foundation, New York, pp. 193–234. Moriguchi, C. (2010) Top wage incomes in Japan, 1951– 2005, Journal of the Japanese and International Economies, 24, 301–33. doi:10.1016/j.jjie.2009.12.008 Pirttilä, J. and Selin, H. (2011) Income shifting within a dual income tax system: evidence from the Finnish Tax Reform of 1993, Scandinavian Journal of Economics, 113, 120–44. doi:10.1111/j.1467-9442.2010.01635.x Saez, E. (2003) The effect of marginal tax rates on income: a panel study of bracket creep, Journal of Public Economics, 87, 1231–58. doi:10.1016/S0047-2727(01)00178-5 Saez, E. (2004) Reported incomes and marginal tax rates, 1960–2000: evidence and policy implications, in Tax Policy and the Economy, Vol. 18, Poterba, J. M. (Ed), MIT Press, Cambridge, MA, pp.117–74. Saez, E. (2010) Do taxpayers bunch at kink points?, American Economic Journal: Economic Policy, 2, 180–212. Saez, E., Slemrod, J. and Giertz, S. H. (2012) The elasticity of taxable income with respect to marginal tax rates: a critical review, Journal of Economic Literature, 50, 3–50. doi:10.1257/jel.50.1.3 Saez, E. and Veall, M. R. (2005) The evolution of high incomes in Northern America: lessons from Canadian evidence, American Economic Review, 95, 831–49. doi:10.1257/0002828054201404 Sanmartín, J. (2007) El efecto de los cambios en los tipos marginales sobre la base imponible del IRPF, Hacienda Pública Española, 182, 9–27. Sanz, J. F., Castañer, J. M. and Romero, D. (2009) Análisis De Reformas Del Impuesto Sobre La Renta Personal a Partir De Microdatos Tributarios. El Simulador De La Fundación De Las Cajas De Ahorros (Funcasim), Estudios de la Fundación. Serie Análisis. Fundación de las Cajas de Ahorros (Funcas), Madrid. Sillamaa, M.-A. and Veall, M. R. (2001) The effect of marginal tax rates on taxable income: a panel study of the 1988 tax flattening in Canada, Journal of Public Economics, 80, 341–56. doi:10.1016/S0047-2727(00)00128-6 Singleton, P. (2011) The effect of taxes on taxable earnings: evidence from the 2001 and related U.S. Federal Tax Acts, National Tax Journal, 64, 323–52. Slemrod, J. (1998) Methodological issues in measuring and interpreting taxable income elasticities, National Tax Journal, 51, 773–88.
Collections