What is it about?
Tax payers respond to the incentives that the tax system generates. However tax payers can find it difficult to reach their preferred income level given the tax. We show in this paper that, given some assumptions, we are able to recover the tax payer's response to taxes even if they face 'optimisation' frictions, and we show how to apply conventional maximum likelihood methods to measure the response to taxation.
Featured Image
Why is it important?
This extends the tool box of the empirical economist interested in the effect of taxes on income. In many cases we think ignoring optimisation frictions reduces the size of the response to taxes.
Perspectives
This was an interesting exercise to complete in a context where, in the end, we could carry out the analysis muchfurther than I believed at the outset.
Professor Gauthier Lanot
Department of Economics, Umeå School of Business University, Umeå University
Read the Original
This page is a summary of: A maximum likelihood bunching estimator of the elasticity of taxable income, Journal of Applied Econometrics, January 2024, Wiley,
DOI: 10.1002/jae.3015.
You can read the full text:
Contributors
The following have contributed to this page
