Measuring revenue responses to tax rate changes in multi-rate income tax systems: behavioural and structural factors

John Creedy and Norman Gemmell

International Tax and Public Finance, 2013, vol. 20, issue 6, 974-991

Abstract: This paper shows how income changes in response to changes in marginal income tax rates (MTRs) translate into tax revenue changes for the familiar multi-step income tax function used in many countries. Previous literature has focused on the relatively straightforward case of a proportional income tax or the top MTR only. The paper examines revenue responses at both the individual and aggregate levels, and it is shown that for individual MTRs within a multi-rate regime, simple expressions for tax revenue responsiveness can be derived that nevertheless capture the various behavioural and structural responses to income tax reforms involving changes to multiple rates and thresholds. Illustrations are provided using changes to the New Zealand income tax structure in the 2010 budget. This reduced all marginal tax rates while leaving income thresholds unchanged. Copyright Springer Science+Business Media New York 2013

Keywords: Income tax revenue; Elasticity of taxable income; Revenue elasticity; H24; H31; H26 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:itaxpf:v:20:y:2013:i:6:p:974-991

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DOI: 10.1007/s10797-012-9255-7

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