Marginal Tax Rates and Income in the Long Run: Evidence from a Structural Estimation

Patrick Macnamara, Myroslav Pidkuyko and Raffaele Rossi

Economics Discussion Paper Series from Economics, The University of Manchester

Abstract: We estimate the long-run response of income to marginal tax rate changes within a life-cycle model of the US. We find statistically significant long-run tax elasticities of income of around 0.66 for all taxpayers. Estimated elasticities are largest for the richest 1% but are also positive for other income groups. In our economy, the most productive agents obtain higher returns on their wealth by choosing to be entrepreneurs. This crucial feature, in combination with earnings risk and tax progressivity, increases the incentives to save and invest for the richest, high-return entrepreneurs, thus amplifying their income responses to marginal tax changes.

JEL-codes: E62 H21 H24 (search for similar items in EconPapers)
Date: 2021-03, Revised 2022-01
New Economics Papers: this item is included in nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Marginal tax rates and income in the long run: Evidence from a structural estimation (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:man:sespap:2105

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