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Regression Estimates of the Elasticity of Taxable Income and the Choice of Instrument

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dc.contributor.author Carey, Simon
dc.contributor.author Creedy, John
dc.contributor.author Gemmell, Norman
dc.contributor.author Teng, Josh
dc.date.accessioned 2012-09-21T06:13:11Z
dc.date.accessioned 2022-07-05T02:38:57Z
dc.date.available 2012-09-21T06:13:11Z
dc.date.available 2022-07-05T02:38:57Z
dc.date.copyright 2012
dc.date.issued 2012
dc.identifier.uri https://ir.wgtn.ac.nz/handle/123456789/18710
dc.description.abstract This paper examines estimation of the elasticity of taxable income using instrumental variable regression methods. It is argued that the ‘standard instrument’ for the net-of-tax rate − the rate that would be applicable post-reform but with unchanged income levels − is unsatisfactory in contexts where there are substantial exogenous changes in taxable income. Two alternative tax rate instruments are proposed, using estimates of the dynamics of taxable income for a panel of taxpayers over a period that involves no tax changes. The parameters derived from this procedure are then used to construct hypothetical (or counterfactual) post-reform incomes that would be expected in the absence of reform. The first method is based on the tax rate each individual would face if income were equal to ‘expected income’, conditional on income in two periods before the tax change. The second alternative uses the form of the conditional distribution of income for each taxpayer to obtain an instrument based on the ‘expected tax rate’. The methods are applied to the tax change in New Zealand in 2001. en_NZ
dc.format pdf en_NZ
dc.language.iso en_NZ
dc.publisher Te Herenga Waka—Victoria University of Wellington en_NZ
dc.relation.ispartofseries Working Papers in Public Finance 2012 en_NZ
dc.subject Elasticity of taxable income en_NZ
dc.subject Variable regression methods en_NZ
dc.subject Tax rate instrument en_NZ
dc.title Regression Estimates of the Elasticity of Taxable Income and the Choice of Instrument en_NZ
dc.type Text en_NZ
vuwschema.contributor.unit Victoria Business School (Faculty of Commerce) en_NZ
vuwschema.subject.anzsrcfor 140215 Public Economics - Taxation and Revenue en_NZ
vuwschema.subject.marsden 140215 Public Economics - Taxation and Revenue en_NZ
vuwschema.type.vuw Working or Occasional Paper en_NZ
vuwschema.subject.anzsrcforV2 380115 Public economics - taxation and revenue en_NZ
dc.rights.rightsholder http://www.victoria.ac.nz/sacl en_NZ

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