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Individual Heterogeneity, Nonlinear Budget Sets, and Taxable Income
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Economics, Uppsala Center for Fiscal Studies.
Dallas Federal Reserve.
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Economics, Uppsala Center for Fiscal Studies.
Department of Economics, MIT.
2014 (English)Report (Other academic)
Abstract [en]

Given the key role of the taxable income elasticity in designing an optimal tax system there are many studies attempting to estimate this elasticity. A problem with most of these studies is that strong functional form assumptions are used and that heterogeneity in preferences is not allowed for. Building on Blomquist and Newey (2002) we in this paper develop a nonparametric method to estimate expected taxable income as a function of a nonlinear budget set, taking multidimensional heterogeneity and optimization errors fully into account. We reduce the dimensionality of the problem by exploiting structure implied by utility maximization with piecewise linear convex budget sets. We apply the method to Swedish data and estimate for prime age males a significant net of tax elasticity of 0.6 and a significant income elasticity of -0.08.

Place, publisher, year, edition, pages
2014. , 37 p.
Series
Working paper / Uppsala Center for Fiscal Studies, Uppsala University, 2014:1
Keyword [en]
Nonlinear budget sets, nonparametric estimation, additive models, heterogeneous
National Category
Economics
Research subject
Economics
Identifiers
URN: urn:nbn:se:uu:diva-217723OAI: oai:DiVA.org:uu-217723DiVA: diva2:693333
Available from: 2014-02-04 Created: 2014-02-04 Last updated: 2014-02-04Bibliographically approved

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Blomquist, SörenLiang, Che-Yuan

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CiteExportLink to record
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Citation style
  • apa
  • ieee
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  • de-DE
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  • en-US
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Output format
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