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Responsiveness of Income to Local Income Taxes: Evidence from Indiana

Lang (Kate) Yang and Bradley T. Heim

National Tax Journal, 2017, vol. 70, issue 2, 367-392

Abstract: This paper examines the extent to which incomes respond to changes in county level income taxes, using data from the Indiana Department of Revenue on county-level taxable incomes that span 1997–2013, matched to data on local income tax rates and other county characteristics. Fixed effects models show that county income tax rates have little impact on the county level aggregate taxable income. Changes in competitor tax rates, with competitors identified based on contiguity, similarity in population size, and migration patterns, do not affect county taxable income either. Overall, taxpayers are unresponsive to small changes in local income tax rates.

Date: 2017
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Handle: RePEc:ntj:journl:v:70:y:2017:i:2:p:367-392