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Income tax rate increases and heterogeneous taxpayers’ reactions: a spatial regression discontinuity design

Augusto Cerqua () and Emma Galli ()
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Emma Galli: Department of Social Sciences and Economics, Sapienza University of Rome

No 17/20, Working Papers from Sapienza University of Rome, DISS

Abstract: This paper exploits a sudden increase in the regional surcharge on the income tax rate in Lazio, one of the most populated regions of Italy, to compare taxpayers’ reported income in Lazio’s municipalities with those in the municipalities located in six neighboring regions. To this end, we have built a new yearly dataset (2012-2018) at municipal level containing the reported income of different categories of taxpayers and employ a spatial regression discontinuity design to estimate the response to an increase of the marginal tax rate in terms of reported taxable income by different types of taxpayers. We find a sizable and persistent decrease in reported income only for the self-employed and entrepreneurs, while the employees respond by slowly reducing their declared incomes. As expected, the retirees do not exhibit any response.

Keywords: Income tax; taxpayers’ responses; spatial regression discontinuity design (search for similar items in EconPapers)
JEL-codes: C21 H26 J21 (search for similar items in EconPapers)
Date: 2020-09
New Economics Papers: this item is included in nep-eur, nep-ore and nep-pub
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