The elasticity of taxable income of high earners: Evidence from Hungary

Áron Kiss and Palma Filep-Mosberger

No 2011/11, MNB Working Papers from Magyar Nemzeti Bank (Central Bank of Hungary)

Abstract: The paper studies how high-income taxpayers responded to the introduction of the ‘extraordinary tax on individuals’ in Hungary in 2007. The study is based on a panel of tax returns compiled by the Hungarian Tax Authority for the purposes of this study, containing information on 10 percent of tax-filers from 2005 and three subsequent years. We estimate the elasticity of taxable income with respect to the marginal net-of-tax rate and find that the taxable income of Hungarian high earners is moderately responsive to taxation: the estimated elasticity is about 0.2. This means that if the upper tax rate of the 2010 Hungarian tax system were increased by a small amount, the behavioral response of taxpayers would reduce the additional tax revenue by about 60 percent. We find evidence suggesting that the elasticity is a reflection of a labor supply response to the tax change on the intensive margin, and not a reflection of tax shifting, avoidance or evasion.

Keywords: taxable income elasticity; personal income tax; tax avoidance (search for similar items in EconPapers)
JEL-codes: H20 H24 H31 J22 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2011
New Economics Papers: this item is included in nep-acc, nep-iue, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Journal Article: The elasticity of taxable income of high earners: evidence from Hungary (2015)
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