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The Impact of Marginal Tax Rates on Taxable Income: Evidence from State Income Tax Differentials
Author(s) -
Long James E.
Publication year - 1999
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/j.2325-8012.1999.tb00204.x
Subject(s) - taxable income , economics , state income tax , adjusted gross income , gross income , taxpayer , tax rate , income tax , labour economics , international taxation , indirect tax , write off , tax reform , monetary economics , demographic economics , public economics , macroeconomics , accounting
The relationship between marginal tax rates and taxable income is analyzed with a large cross section of income tax returns filed by individuals who face different marginal tax rates because of state income tax differentials. The empirical results suggest that an increase in the marginal tax rate reduces taxable income primarily because taxpayers claim larger deductions. High‐income taxpayers are found to be more responsive to tax rate changes than lower‐income individuals. The findings are compared to those of other recent studies incorporating a wider range of taxpayer responses to tax rate changes than considered in this study.