Micro and macro evidence of the relationship between income mobility and taxation
Working paper
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Date
2024-01Metadata
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- Discussion Papers [1004]
Abstract
How taxation influences income mobility is largely a neglected topic. In this study we discuss the
relationship between taxation and income mobility by analyzing both macro and micro data.
Administrative register data based on income tax returns are used to produce individual and
aggregate measures of income mobility from 1994 to 2021. Income mobility is explained in terms of
marginal tax rates on both wage income and capital income. Estimation results are obtained from
an autoregressive distributed lag model and a fixed effects linear probability model for the macro
and micro data approaches, respectively. The macro and micro evidence point in the same direction
— we find that income mobility is negatively influenced by higher marginal tax rates on both earnings
and capital income, with the largest effect found for tax on capital income.