Progression and revenue effects of income tax reform |
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Authors: | Koen Caminada Kees Goudswaard |
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Institution: | (1) Faculty of Law, Department of Public Finance, Leiden University, P.O. Box 9521, 2300 RA Leiden, The Netherlands;(2) Faculty of Law, Department of Public Finance, Leiden University, P.O. Box 9521, 2300 RA Leiden, The Netherlands |
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Abstract: | Usually, only initial revenue effects of personal income tax reforms are considered. However, a tax reform characterized by base broadening in exchange for rate reduction can reduce the income elasticity of tax revenue. In that case, the increase in revenue after income growth will be relatively smaller: the tax reform has a negative effect on revenue in the second period. Using the microtax model of the Central Planning Bureau we simulated the effects of the Dutch Oort reform 1990 on revenue elasticities and, consequently, on tax revenue. The income tax revenue elasticity declined by 17 percent which caused an additional revenue loss of 0.6 percent in 1990, rising to 3.8 percent in 1993. |
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Keywords: | tax reform progression income tax revenue elasticity budgetary effects |
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