Panel Data Techniques and the Elasticity of Taxable Income: Working Paper 2008-11

This paper examines the elasticity of taxable income with a focus on income controls designed to control for divergence in the income distribution and mean reversion. Additional emphasis is placed on the difference between short-run and longer-run responses to tax rate changes. Several panel techniques are applied to tax return data for years 1991 to 1997, followed by a cross-section analysis covering the same period. For each panel regression, an innovative inverted panel regression framework is employed to test the efficacy of the controls for mean reversion apart from controls for