Universität zu Köln

Doerrenberg, Philipp, Peichl, Andreas and Siegloch, Sebastian (2017). The elasticity of taxable income in the presence of deduction possibilities. J. Public Econ., 151. S. 41 - 56. LAUSANNE: ELSEVIER SCIENCE SA. ISSN 0047-2727

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Abstract

Several recent studies show that the elasticity of taxable income (ETI) is not a sufficient statistic for the welfare costs of taxation due to factors such as tax-base shifting. This paper provides an additional argument demonstrating the non -sufficiency of the Ell namely tax deductions. Building on a theoretical framework which incorporates deductions in a standard optimal-tax model, we show that the ETI is not sufficient for welfare analysis if (i) deductions generate externalities and if (ii) deductions are responsive to tax-rate changes. While the first condition should arguably hold true for the majority of tax deductions, we provide an empirical examination of the second condition. Relying on rich German panel data from administrative tax records, we exploit several tax reforms that were implemented in Germany between 2001 and 2008. Our main estimates indicate an overall ETI between 0:54 and 0.68 and an elasticity of deductions with respect to the net-of-tax rate of about 0.9. These results suggest that the Ell is not sufficient to calculate the welfare cost of taxation. (C) 2015 Elsevier B.V. All rights reserved.

Item Type:	Journal Article
Creators:	Creators Email ORCID ORCID Put Code Doerrenberg, Philipp UNSPECIFIED UNSPECIFIED UNSPECIFIED Peichl, Andreas UNSPECIFIED UNSPECIFIED UNSPECIFIED Siegloch, Sebastian UNSPECIFIED UNSPECIFIED UNSPECIFIED
URN:	urn:nbn:de:hbz:38-226140
DOI:	10.1016/j.jpubeco.2015.10.001
Journal or Publication Title:	J. Public Econ.
Volume:	151
Page Range:	S. 41 - 56
Date:	2017
Publisher:	ELSEVIER SCIENCE SA
Place of Publication:	LAUSANNE
ISSN:	0047-2727
Language:	English
Faculty:	Unspecified
Divisions:	Unspecified
Subjects:	no entry
Uncontrolled Keywords:	Keywords Language MARGINAL TAX RATES; LABOR SUPPLY ELASTICITIES; CALCULATE DEADWEIGHT LOSS; REFORM-ACT; WARM-GLOW; AVOIDANCE; RESPONSES; PANEL; EVASION Multiple languages Economics Multiple languages
Refereed:	Yes
URI:	http://kups.ub.uni-koeln.de/id/eprint/22614