Elasticity of taxable income evidence from changes in municipal income tax rates in Finland Tuomas Matikka
By: Matikka, Tuomas
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Material type: 
ArticlePublisher: 2018Subject(s): RENTA | TRIBUTOS LOCALES | ELASTICIDAD IMPOSITIVA | FINLANDIAOnline resources: Click here to access online
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The Scandinavian Journal of Economics v. 120, n. 3, p. 943-973Summary: The elasticity of taxable income (ETI) is a key parameter in income tax analysis, in terms of both efficiency and tax revenue. In this paper, I use Finnish data to analyze the ETI. I use changes in flat municipal income tax rates as an instrument for overall changes in marginal tax rates. This instrument is not a function of individual income, and thus the ETI estimates are less susceptible to bias caused by differential trends across the income distribution. In general, instruments used in previous studies do not have this feature. My preferred estimate for the average ETI is 0.21.
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| OP 1376/2018/2-1 Corporate taxation and productivity catch-up | OP 1376/2018/2-2 Revisiting the narrative approach of estimating tax multipliers | OP 1376/2018/3 The Scandinavian Journal of Economics | OP 1376/2018/3-1 Elasticity of taxable income | OP 1376/2018/4 The Scandinavian Journal of Economics | OP 1376/2018/4-1 Education policies and taxation without commitment | OP 1376/2019/1 The Scandinavian Journal of Economics |
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The elasticity of taxable income (ETI) is a key parameter in income tax analysis, in terms of both efficiency and tax revenue. In this paper, I use Finnish data to analyze the ETI. I use changes in flat municipal income tax rates as an instrument for overall changes in marginal tax rates. This instrument is not a function of individual income, and thus the ETI estimates are less susceptible to bias caused by differential trends across the income distribution. In general, instruments used in previous studies do not have this feature. My preferred estimate for the average ETI is 0.21.
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