The elasticity of taxable income with respect to the 2001 and 2003 federal marginal tax cuts

Steven Manley, University of Texas at El Paso

Abstract

This thesis researches the affects of the 2001 and 2003 federal tax cuts on taxpayer behavior. In particular, the focus is on the elasticity of taxable income (ETI) with respect to changes in marginal net-of-tax rates. The importance of the impact that estimating the ETI may have on forecasting government tax revenue following future tax rate changes is emphasized. This thesis provides a literature review of relevant prior ETI research, especially highlighting the tax changes of the 1980s and 1990s. The major differences in past methodologies are discussed and previous ETI estimates are compared. For this thesis, aggregate cross-sectional income data is used, along with an interpolation based on the Pareto distribution, in order to estimate the ETI of the 2000s. ETI estimates with respect to these most recent tax changes range from 2.65 to 4.492, depending on the specific years involved. The thesis concludes that, while there seems to be a significant affect of tax rate changes on taxpayer behavior, more research is required in order to better ascertain the causes and extent of such behavior. ^

Subject Area

Chemistry, Biochemistry|Economics, General

Recommended Citation

Manley, Steven, "The elasticity of taxable income with respect to the 2001 and 2003 federal marginal tax cuts" (2007). ETD Collection for University of Texas, El Paso. AAI1449748.
http://digitalcommons.utep.edu/dissertations/AAI1449748

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