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Tax Systems$
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Joel Slemrod and Christian Gillitzer

Print publication date: 2014

Print ISBN-13: 9780262026727

Published to MIT Press Scholarship Online: May 2014

DOI: 10.7551/mitpress/9780262026727.001.0001

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Tax Base Elasticity

Tax Base Elasticity

(p.79) 5 Tax Base Elasticity
Tax Systems

Joel Slemrod

Christian Gillitzer

The MIT Press

This chapter examines the concept of a tax base elasticity, which captures all of the margins of behavioral response and which, under certain conditions, summarizes the welfare cost of changing tax rates. It first demonstrates this sufficiency argument formally, clarifies whether the analysis applies to tax evasion, and then discusses several issues that arise in applying this concept practically to the welfare analysis of tax policy. The principal caveats are 1) fiscal externalities and income shifting and 2) changes in the definition of the tax base. It illustrates these issues with recent policy changes and critically discusses the identification issues that arise in empirical analysis.

Keywords:   Tax elasticity, Fiscal externalities, Income shifting

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