The Incentive Effects of Marginal Tax Rates: Evidence from the Interwar Era

Christina D. Romer and David Romer

American Economic Journal: Economic Policy, 2014, vol. 6, issue 3, 242-81

Abstract: This paper uses the interwar United States as a laboratory for investigating the incentive effects of marginal income tax rates. We examine the impact of the large changes in rates in this period on taxable income using time-series/cross-section analysis of data by small slices of the income distribution. We find that the effect operated in the expected direction but was economically small, and that it is precisely estimated and highly robust. We also find suggestive time-series evidence of a positive impact of marginal rate cuts on business formation, but no evidence of an important effect on other indicators of investment.

JEL-codes: D31 H24 H31 M13 N42 (search for similar items in EconPapers)
Date: 2014
Note: DOI: 10.1257/pol.6.3.242
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Citations: View citations in EconPapers (14)

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Working Paper: The Incentive Effects of Marginal Tax Rates: Evidence from the Interwar Era (2012)
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