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The Tax Effect on Taxable Income from Privately Held Businesses
Author(s) -
Wu ShihYing
Publication year - 2005
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.2325-8012.2005.tb00682.x
Subject(s) - taxable income , economics , income elasticity of demand , business , international taxation , state income tax , labour economics , elasticity (physics) , public economics , monetary economics , tax reform , accounting , materials science , composite material
The implications of the tax elasticity of taxable income have been widely discussed in the literature. This study uses the reported rate of return to capture the effects of tax changes on taxable income from privately held businesses. Households' decisions concerning reporting rates of return are embedded in a selection model of business investment decisions. With 1983‐1989 Survey of Consumer Finances panel data, the tax elasticity of the reported rates of return on privately held businesses is found to be positive and large. The tax elasticity of taxable income from privately held businesses is thus crucial for policy evaluation. Several reasons for the high tax elasticity and the implications of it are also discussed.