The impact of income tax changes on tax revenue
Year: 2026
Type: article
Abstract: This article shows that tax revenue responses to changes in tax rates crucially depend on how the changes affect the marginal tax rate relative to the average tax rate. Using a wide range of empirical frameworks and datasets, we find that tax multipliers are consistently large and tax revenues fall in response to tax rises, particularly when marginal taxes are raised. We validate our empirical findings within canonical real and new-Keynesian general equilibrium models by introducing the wedge between the average and marginal tax rates. Doing so reconciles a significant discrepancy between the theoretical and empirical size of tax multipliers.
Source: Oxford Economic Papers
DOI: 10.1093/oep/gpag014
Language: English
Topic: Economic and Fiscal Studies
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $5,359
OpenAlex ID: W7160101993