Acta Oeconomica Pragensia 2015, 23(3):18-29 | DOI: 10.18267/j.aop.473

Elasticity of taxable income. A case study for the Czech Republic

Kateřina Gawthorpe
VŠE v Praze, Fakulta podnikohospodářská (email: xzimk04@gmail.com).

Elasticity of taxable income has increasingly become an important subject matter for economists in recent times. This study provides an estimate for the Czech Republic by exploiting panel data for corporate income tax rates between 2004 and 2009. The severity of the tax evasion and avoidance issue in this country triggers a question about the existence of the elasticity itself. The uniqueness of this study also stems from its focus on proportional tax rates while other influential studies examine this subject for progressive taxation. The result of this research supports a hypothesis about indifference between taxable incme decision and the size of the tax rate; about fifty percent of the observations in the sample are not subject to taxation. The high level of tax avoidance could explain such an outcome intensifying the necessity to fight this fiscal policy phenomenon.

Keywords: taxable income, elasticity, corporate income tax, Czech Republic
JEL classification: C23, H21

Published: June 1, 2015  Show citation

ACS AIP APA ASA Harvard Chicago Chicago Notes IEEE ISO690 MLA NLM Turabian Vancouver
Gawthorpe, K. (2015). Elasticity of taxable income. A case study for the Czech Republic. Acta Oeconomica Pragensia, 23(3), 18-29. doi: 10.18267/j.aop.473
Download citation
  • BibTeX (.bib)
  • Bookends (.ris)
  • EasyBib (.ris)
  • EndNote (.enw)
  • EndNote 8 (.xml)
  • ISI WoS (.isi)
  • Medlars (.medlars)
  • Mendeley (.ris)
  • MODS (.xml)
  • Papers (.ris)
  • RefWorks (.txt)
  • RefManager (.ris)
  • RIS (.ris)
  • MS Word (.xml)
  • Zotero (.ris)
    • Open full article

    References

    1. ARELLANO, M., 1987. Computing robust standard errors for within-groups estimators. Oxford Bulletin of Economics and Statistics. Issue 4, pp.431-434. ISSN 0305-9049. Go to original source...
    2. AUTEN, G.; CARROLL R., 1999. The effect of income taxes on household income. Review of Economics and Statistics. Issue 4, pp.681-693. ISSN 0034-6535. Go to original source...
    3. BAKOS, P.; BENCZÜR, P.; BENEDEK, D., 2008. The elasticity of taxable income: Estimates and flat tax predictions using the Hungarian tax changes in 2005 [online]. Budapest: MNB. [accessed January 25, 2015]. ISSN 1585-5600. Available at: https://www.aeaweb.org/assa/2009/retrieve.php?pdfid=110.
    4. CAMERON, A. C.; TRIVEDI, P. K., 2009. Microeconometrics: methods and applications. Cambridge university press. ISBN 978-1-59718-048-1.
    5. CARROLL, R.; HRUNG, W., 2005. What Does the Taxable Income Elasticity Say about Dynamic Responses to Tax Changes? The American Economic Review. Issue 2, pp.426-431. ISSN 0002-8282. Go to original source...
    6. CHOI, In., 2001. Unit root tests for panel data. Journal of international money and Finance. Issue 2, pp.249-272. ISSN 0261-5606. Go to original source...
    7. CROISSANT, Yves, et al., 2008. Panel data econometrics in R: The plm package. Journal of Statistical Software. Issue 2, pp.1-43. ISSN 1548-7660. Go to original source...
    8. DEVEREUX, M. P.; LIU, L.; LORETZ, S., 2014. The elasticity of corporate taxable income: New evidence from UK tax records. American Economic Journal: Economic Policy. Issue 2, pp.19-53. ISSN 1945-7731. Go to original source...
    9. FELDSTEIN, M., 1995. The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act. Journal of Political Economy. Issue 3, pp.551-572. ISSN 0022-3808. Go to original source...
    10. GIERTZ, S. H., 2010. The Elasticity of Taxable Income during the 1990s: New Estimates and Sensitivity Analyses. Southern Economic Journal. Issue 2, pp.406-433. ISSN 0038-4038. Go to original source...
    11. GOOLSBEE, A., 1997. What Happens When You Tax the Rich? Evidence from Executive Compensation. National Bureau of Economic Research [working paper no.6333, online]. [accessed January 25, 2015]. Available at: http://www.nber.org/papers/w6333. Go to original source...
    12. GRUBER, J.; SAEZ, E., 2002. The Elasticity of Taxable Income: Evidence and Implications. Journal of Public Economics. Issue 84, pp.1-32. ISSN 0047-2727. Go to original source...
    13. HALL, R. E.; RABUSHKA, A., 1983. Low tax, simple tax, flat tax. McGraw-Hill New York. ISBN 9780070256705.
    14. IM, K. S.; PESARAN, M. H.; SHIN, Y., 2003. Testing for unit roots in heterogeneous panels. Journal of Econometrics. Issue 1, pp.53-74. ISSN 0304-4076. Go to original source...
    15. LEVIN A.; LIN C.F.; CHU C.J., 2002. Unit root tests in panel data: asymptotic and finite-sample properties. Journal of Econometrics. Issue 1, pp.1-24. ISSN 0304-4076. Go to original source...
    16. LINDSEY, L. B., 1987. Individual taxpayer response to tax cuts: 1982-1984: with implications for the revenue maximizing tax rate. Journal of Public Economics. Issue 2, pp.173-206. ISSN 0047-2727. Go to original source...
    17. MADDALA, G. S.; WU, S., 1999. A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and statistics. Issue SI, pp.631-652. ISSN 03059049. Go to original source...
    18. MAREK, L., 2010. Daňové úniky v oblasti přímých daní u podnikatelských subjektů. Brno. Diplomová práce. Mendelova univerzita v Brně. Fakulta provozně ekonomická.
    19. MATIKKA, T., 2014. Taxable Income Elasticity and the Anatomy of Behavioral Response: Evidence from Finland. Government Institute for Economic Research [VATT Working Papers 55/2014, online]. [accessed January 25, 2015]. Available at: http://www.vatt.fi/file/vatt_publication_pdf/wp55.pdf
    20. NAVRATIL, J., 1995. The Economic Recovery Tax Act of 1981: Evidence on Individual Taxpayer Behavior from Panel Tax Return Data. Harvard University. Mimeograph.
    21. CZECH.CZ. Prime minister unveils plans to fight tax fraud [online]. [accessed January 25, 2015]. Available at: www.czech.cz/en/News/Current-Affairs/Prime-minister-unveils-plans-to-fight-tax-fraud.
    22. PWC, 2014. Paying Taxes 2014: The global picture [online]. [accessed January 25, 2015]. Available at: http://www.pwc.com/gx/en/paying-taxes/assets/pwc-paying-taxes-2014.pdf.
    23. SARGENT, T. J., 2014. Rational Expectations. In: The Concise Encyclopedia of Economics [online]. Library of Economics and Liberty. [accessed January 25, 2015]. Available at: http://www.econlib.org/library/Enc1/RationalExpectations.html. Go to original source...
    24. SALIH, T., 2010. Tax evasion and financial deficit in the Czech republic. Scientific papers of the University of Pardubice. Issue 16, pp.253 - 264. ISSN 1211 - 555X.
    25. SCHMIDHEINY, K.; BASEL, U., 2011. Panel data: fixed and random effects [online]. Short Guides to Microeconometrics. Pp 2-7 [accessed January 25, 2015]. Available at: http://kurt.schmidheiny.name/teaching/panel2up.pdf.
    26. SILLAMAA, M.-A.; VEALL, M. R., 2001. The effect of marginal tax rates on taxable income: a panel study of the 1988 tax flattening in Canada. Journal of Public Economics. Issue 3, pp.341-356. ISSN 0047-2727. Go to original source...
    27. TORRES-REYNA, O., 2010. Getting started in fixed/random effects models using R. [accessed January 25, 2015]. Available at: http://www.princeton.edu/~otorres/Regression101R.pdf.
    28. VOGELSANG, T. J., 2012. Heteroskedasticity, autocorrelation, and spatial correlation robust inference in linear panel models with fixed-effects. Journal of Econometrics. Issue 2, pp.303-319. ISSN 0304-4076. Go to original source...
    29. WOOLDRIDGE, J. M., 2006. Introductory econometrics: a modern approach. Mason, Ohio: Thomson South-West.

    This is an open access article distributed under the terms of the Creative Commons Attribution 4.0 International License (CC BY 4.0), which permits use, distribution, and reproduction in any medium, provided the original publication is properly cited. No use, distribution or reproduction is permitted which does not comply with these terms.


    Return to the content