Template-Type: ReDIF-Paper 1.0
Title: Is the elasticity of taxable income mostly an income effect?
Author-Name: Xavier Dufour-Simard
Author-Name: Pierre-Carl Michaud
Author-Name: Michael Smart
Creation-date: 2025
Abstract: We use variation in marginal tax rates and in tax bracket thresholds at which they apply in order to identify the substitution and income effects 
of tax reforms. We use a triple-difference estimator that exploits variation from subnational tax reforms, for which behavioral responses to taxes are 
identified even in the presence of unobservable shocks to the income distribution. While high-income taxpayers respond more to tax changes, our results 
suggest this reflects much more the income or salience effects of tax reforms, rather than inherent heterogeneity in substitution effects. We discuss
the implications for optimal redistributive tax policies
Classification-JEL: D31, H21, H24.
Keywords: income and substitution effects, tax salience, optimal progressivity.
File-URL: https://cjp.hec.ca/wp-content/uploads/2025/03/Cahier-04.pdf
File-Size: 3800
Handle: RePEc:rsi:cjpcha:04