Template-Type: ReDIF-Paper 1.0
Author-Name: Áron Kiss
Author-X-Name-First: Áron
Author-X-Name-Last: Kiss
Author-Email: kissa@mnb.hu
Author-Workplace-Name: Magyar Nemzeti Bank (central bank of Hungary)
Author-Name: Pálma Mosberger
Author-X-Name-First: Pálma
Author-X-Name-Last: Mosberger
Author-Email: mosberger_palma@ceu-budapest.edu
Author-Workplace-Name: Central European University

Title: The elasticity of taxable income of high earners: Evidence from Hungary

Abstract: The paper studies how high-income taxpayers responded to the introduction of the ‘extraordinary tax on individuals’ in Hungary in 2007. The study is based on a panel of tax returns compiled by the Hungarian Tax Authority for the purposes of this study, containing information on 10 percent of tax-filers from 2005 and three subsequent years. We estimate the elasticity of taxable income with respect to the marginal net-of-tax rate and find that the taxable income of Hungarian high earners is moderately responsive to taxation: the estimated elasticity is about 0.2. This means that if the upper tax rate of the 2010 Hungarian tax system were increased by a small amount, the behavioral response of taxpayers would reduce the additional tax revenue by about 60 percent. We find evidence suggesting that the elasticity is a reflection of a labor supply response to the tax change on the intensive margin, and not a reflection of tax shifting, avoidance or evasion.

Length: 38 pages
Creation-Date: 2011
File-URL: http://www.mnb.hu/letoltes/wp-2011-11.pdf
File-Format: Application/pdf
Number: 2011/11
Classification-JEL: H20, H24, H31, J22
Keywords: taxable income elasticity, personal income tax, tax avoidance

Handle: RePEc:mnb:wpaper:2011/11