Is the elasticity of taxable income mostly an income effect ?

Xavier Dufour-Simard, Pierre-Carl Michaud and Michael Smart

CIRANO Working Papers from CIRANO

Abstract: → Executive summary We use variation in marginal tax rates and in tax bracket thresholds at which they apply in order to identify the substitution and income effects of tax reforms. We use a triple-difference estimator that exploits variation from subnational tax reforms, for which behavioral responses to taxes are identified e ven i n t he p r esence o f unobservable shocks to the income distribution. While high-income taxpayers respond more to tax changes, our results suggest this reflects much more the income or salience effects of tax reforms, rather than inherent heterogeneity in substitution effects. We discuss the implications for optimal redistributive tax policies. → Sommaire exécutif Nous utilisons la variation des taux marginaux d'imposition et des seuils des tranches d'imposition auxquels ils s'appliquent afin d'identifier les effets de substitution et de revenu des réformes fiscales. Nous utilisons un estimateur à triple différence qui exploite la variation des réformes fiscales infranationales, pour lesquelles les réponses comportementales aux impôts sont identifiées même en présence de chocs non observables sur la distribution des revenus. Si les contribuables à haut revenu réagissent davantage aux changements fiscaux, nos résultats suggèrent que cela reflète davantage les effets de revenu ou de visibilité des réformes fiscales que l'hétérogénéité inhérente aux effets de substitution. Nous examinons les implications pour les politiques fiscales redistributives optimales.

Keywords: income and substitution effects; tax salience; optimal progressivity; effets de revenu et de substitution; visibilité de l'impôt; progressivité optimale (search for similar items in EconPapers)
JEL-codes: D31 H21 H24 (search for similar items in EconPapers)
Date: 2025-03-19
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Persistent link: https://EconPapers.repec.org/RePEc:cir:cirwor:2025s-05

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