Moore, Winston (2008): The Responsiveness of Taxable Income to Changes in Marginal Tax Rates in Barbados.
Download (285Kb) | Preview
Since 2003 policymakers in Barbados have implemented a series of tax reforms that have lowered both basic as well as marginal income tax rates. These changes have more than likely induced taxpayers to alter their behaviour in order to affect their reported taxable income. This paper employs an annual sample of 3,000 individual taxpayers between 2003 and 2006 to investigate the sensitivity of taxable income to changes in marginal tax rates. The empirical approach adopted also allows the researcher to provided evidence on the variation in taxable income by gender and income group. The paper finds that for every 1 percent rise in the marginal tax rate, taxable income decreases by 0.2 percent. Further disaggregation of the database also revealed that a strong negative labour supply effect causes the elasticity for low-income taxpayers to rise to 0.9, while females tend to be more responsive to changes in marginal taxes relative to males.
|Item Type:||MPRA Paper|
|Original Title:||The Responsiveness of Taxable Income to Changes in Marginal Tax Rates in Barbados|
|Keywords:||Taxable income; Marginal tax rates; Tax avoidance|
|Subjects:||H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H31 - Household
C - Mathematical and Quantitative Methods > C2 - Single Equation Models; Single Variables > C23 - Models with Panel Data; Longitudinal Data; Spatial Time Series
H - Public Economics > H2 - Taxation, Subsidies, and Revenue
|Depositing User:||Winston Moore|
|Date Deposited:||24. Mar 2010 06:22|
|Last Modified:||14. Feb 2013 01:19|
Aaberge, R., Colombino, U. and Strøm, S. (1999) “Labour Supply in Italy: An Empirical Analysis of Joint Household Decisions with Taxes and Quantity Constraints,” Journal of Applied Econometrics 14(4): 403-422.
Auten, G. and Carroll, R. (1999) “The Effect of Income Taxes on Household Income,” Review of Economics and Statistics 81(4): 681-693.
Bleaney, M., Gemmell, N. and Kneller, R. (2001) “Testing the Endogenous Growth Model: Public Expenditure, Taxation, and Growth over the Long Run,” Canadian Journal of Economics, 34(1): 36-57.
Gills, M. (1989) Tax Reform in Developing Countries (Fiscal Reform in the Developing World). Duke University Press, Durham, NC.
Goolsbee, A. (2000) “What Happens When You Tax the Rich? Evidence from Executive Compensation,” Journal of Political Economy 108(2): 352-378.
Gruber, J. and Saez, E. (2002) “The Elasticity of Taxable Income: Evidence and Implications,” Journal of Public Economics 84(): 1-32.
Hayek, F.A. (1960) The Constitution of Liberty. University of Chicago Press, Chicago.
Helms, L.J. (1985) “The Effect of State and Local Taxes on Economic Growth: A Time Series – Cross Section Approach,” Review of Economics and Statistics, 67(4): 574-582.
Hines, J.R. (1996) “Altered States: Taxes and the Location of Foreign Direct Investment in America,” American Economic Review, 86(5): 1076-1094.
Howard, M. (2006) The Economic Development of Barbados. University of the West Indies Press, Kingston, Jamaica: 134-137.
Feldstein, M. (1995) “The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act,” Journal of Political Economy 103(3): 551-572.
Gruber, J. and Saez, E. (2000) “The Elasticity of Taxable Income: Evidence and Implications,” Journal of Public Economics 84(1): 1-32.
Karras, G. (1999) “Taxes and Growth: Testing the Neoclassical and Endogenous Growth Models,” Contemporary Economic Policy, 17(2): 177-188.
Lindsey, L. (1987) “Individual Taxpayer Response to Tax Cuts: 1982-1984, with Implications for the Revenue Maximising Tax Rate,” Journal of Public Economic 33: 173-206.
Long, J.E. (1999) “The Impact of Marginal Tax Rates on Taxable Income: Evidence from State Income Tax Differentials,” 65(4): 855-869.
Mascoll, C. (1991) “Trends in Representative Tax Rates of Representative Individuals in Barbados during the 1980s,” Central bank of Barbados’ Economic Review 18: xxx-xxx.
Saez, E. (2003) “The Effect of Marginal Tax Rates on Income: A Panel Study of ‘Bracket Creep’,” Journal of Public Economics 87(): 1231-1258.
Smith, N., Dex, S., Vlasblom, J.D. and Callan, T. (2003) “The Effects of Taxation on Married Women’s Labour Supply Across Countries,” Oxford Economic Papers 55(3): 417-439.