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The elasticity of taxable income in Spain: 1999-2014

Miguel Almunia () and David López-Rodríguez ()
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David López-Rodríguez: Banco de España

No 1924, Working Papers from Banco de España, Working Papers Homepage

Abstract: We study how taxable income responds to changes in marginal tax rates, using as a main source of identifying variation three large reforms to the Spanish personal income tax implemented in the period 1999-2014. The most reliable estimates of the elasticity of taxable income (ETI) with respect to the net-of-tax rate for this period are between 0.45 and 0.64. The ETI is about three times larger for selfemployed taxpayers than for employees, and larger for business income than for labor and capital income. The elasticity of broad income (EBI) is smaller, between 0.10 and 0.24, while the elasticity of some tax deductions such as the one for private pension contributions exceeds one. Our estimates are similar across a variety of estimation methods and sample restrictions, and also robust to potential biases created by mean reversion and heterogeneous income trends.

Keywords: elasticity of taxable income; ETI; personal income tax; mean reversion; tax deductions; Spain (search for similar items in EconPapers)
JEL-codes: H24 H31 D63 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eur, nep-lma, nep-pbe and nep-pub
Date: 2019-07
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Working Paper: The Elasticity of Taxable Income in Spain: 1999-2014 (2019) Downloads
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