The optimal top marginal tax rate: Application to Hungary

Kiss, Áron

doi:10.17979/ejge.2013.2.2.4290

Cited by 2 publications

(8 citation statements)

References 25 publications

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“…Using the same methodology and utilising data from the 2011 Tax Statistics publication, Steenekamp () estimates a value for a of 2.11 for the top 1% of South African taxpayers. This compares with estimates for the top 1% of income earners of 2.5 for Hungary (Kiss, ), 1.8 for the United Kingdom (Brewer and Browne, ), 1.6 for New Zealand (New Zealand Treasury, ) and 1.5 for the United States (Saez et al ., ).…”

Section: Optimal Taxationsupporting

confidence: 53%

“…An increase in the marginal rate faced by those in the top bracket, τ , will have three distinct effects (Diamond and Saez, ; Kiss, ). The first is a mechanical effect ( dM ) and shows the increase in tax revenue due to the higher tax rate:

d M \equiv N [z^{m} - \overset{false¯}{z}] d τ > 0

Second, the increase in the tax rate triggers a behavioural response that reduces the average reported income among high‐income earners by

d z = - e \cdot z^{m} \cdot d τ / false(1 - τ false)

.…”

Section: Optimal Taxationmentioning

confidence: 99%

“…() and Diamond and Saez () argue that g = 0 is plausible for top earners (the top 1% in their definition). In fact, according to Kiss (), for most social welfare functions it will be the case that g is decreasing in income, and that the zero‐marginal weight result will hold asymptotically for social welfare functions that satisfy the property lim ( g ) = 0 as z goes to infinity. Note that g does not have to converge to zero for the revenue‐maximising rate to be approximately optimal.…”

Section: Optimal Taxationmentioning

confidence: 99%

“…A popular benchmark for calculating the value of g , also used by Diamond and Saez (), supposes that the average marginal value of consumption is inversely proportional to income. We follow Kiss () in setting g equal to the inverse of the ratio of the average income of the respective income group to overall average income. For the top 10% of income earners in our sample, this implies that g = 0.28, similar to the value estimated for Hungary in Kiss ().…”

Section: Optimal Taxationmentioning

confidence: 99%

“…We follow Kiss () in setting g equal to the inverse of the ratio of the average income of the respective income group to overall average income. For the top 10% of income earners in our sample, this implies that g = 0.28, similar to the value estimated for Hungary in Kiss ().…”

Section: Optimal Taxationmentioning

confidence: 99%

See 4 more Smart Citations

The Elasticity of Taxable Income: The Case of South Africa

Kemp¹

2019

South African J Economics

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A key tax policy parameter that has received much attention in the international literature, but about which there is substantial uncertainty, is the overall elasticity of taxable income. The size of this parameter is central to the formulation of tax and transfer policy, as well as for the study of the welfare implications of tax decisions. This paper uses a panel of individual tax returns for the period 2009–2013 and the phenomenon of “bracket creep” to construct instrumental variable estimates of the sensitivity of income to changes in tax rates. Estimates suggest that the overall elasticity of taxable income is approximately 0.3, while that of broad income is significantly lower. The overall response is primarily driven by the elastic response of taxable income for high‐income earners, who have an elasticity of closer to 0.4. Using the elasticity estimates within an optimal tax framework, it is determined that the optimal marginal tax rate for the top 10% of income earners is broadly in line with the current income tax schedule. However, results also suggest that there is little scope for raising marginal rates on high‐income earners further without inducing a negative revenue response.

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Section: Optimal Taxationsupporting

confidence: 53%

d M \equiv N [z^{m} - \overset{false¯}{z}] d τ > 0

Second, the increase in the tax rate triggers a behavioural response that reduces the average reported income among high‐income earners by

d z = - e \cdot z^{m} \cdot d τ / false(1 - τ false)

.…”

Section: Optimal Taxationmentioning

confidence: 99%

Section: Optimal Taxationmentioning

confidence: 99%

Section: Optimal Taxationmentioning

confidence: 99%

Section: Optimal Taxationmentioning

confidence: 99%

See 3 more Smart Citations

The Elasticity of Taxable Income: The Case of South Africa

Kemp¹

2019

South African J Economics

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The elasticity of taxable income: New data and estimates for South Africa

Kemp¹

2020

WIDER Working Paper

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provides economic analysis and policy advice with the aim of promoting sustainable and equitable development. The Institute began operations in 1985 in Helsinki, Finland, as the first research and training centre of the United Nations University. Today it is a unique blend of think tank, research institute, and UN agency-providing a range of services from policy advice to governments as well as freely available original research.The Institute is funded through income from an endowment fund with additional contributions to its work programme from Finland, Sweden, and the United Kingdom as well as earmarked contributions for specific projects from a variety of donors.

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The optimal top marginal tax rate: Application to Hungary

Cited by 2 publications

References 25 publications

The Elasticity of Taxable Income: The Case of South Africa

The Elasticity of Taxable Income: The Case of South Africa

The elasticity of taxable income: New data and estimates for South Africa

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