Identifying behavioral responses to tax reforms: new insights and a new approach
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Identifying behavioral responses to tax reforms : new insights and a new approach. / Jakobsen, Katrine Marie Tofthøj; Søgaard, Jakob Egholt.
2020.Research output: Working paper › Research
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TY - UNPB
T1 - Identifying behavioral responses to tax reforms
T2 - new insights and a new approach
AU - Jakobsen, Katrine Marie Tofthøj
AU - Søgaard, Jakob Egholt
PY - 2020
Y1 - 2020
N2 - We revisit the identification of behavioral responses to tax reforms and develop anew approach that allows for graphical validation of identifying assumptions and rep-resentation of treatment effects. Considering typical tax reforms, such as a reductionin the top income tax, we show that the state-of-the-art estimation strategy relies onan assumption that trend differences in income across the income distribution remainconstant in the absence of reforms. Similar to the pre-trend validation of differences-in-differences studies, this identifying assumption of constant trend differentials canbe validated by comparing the evolution of income in untreated parts of the incomedistribution over time. We illustrate the importance of our new validation approachby studying a number of tax reforms in Denmark, and we show how violations ofthe identifying assumption may drive the estimates obtained from the state-of-the-artstrategy.
AB - We revisit the identification of behavioral responses to tax reforms and develop anew approach that allows for graphical validation of identifying assumptions and rep-resentation of treatment effects. Considering typical tax reforms, such as a reductionin the top income tax, we show that the state-of-the-art estimation strategy relies onan assumption that trend differences in income across the income distribution remainconstant in the absence of reforms. Similar to the pre-trend validation of differences-in-differences studies, this identifying assumption of constant trend differentials canbe validated by comparing the evolution of income in untreated parts of the incomedistribution over time. We illustrate the importance of our new validation approachby studying a number of tax reforms in Denmark, and we show how violations ofthe identifying assumption may drive the estimates obtained from the state-of-the-artstrategy.
M3 - Working paper
T3 - CEBI Working Paper Series
BT - Identifying behavioral responses to tax reforms
ER -
ID: 248805831