Goolsbee reviews the impact of the taxable income elasticity
research that has become so prevalent, and he identifies areas where the research could be improved.
Observing a group's taxable income before and after a tax change will not yield the true taxable income elasticity
unless there are no other changes (in the business cycle, for example) that influence income at the same time.
Because changes in tax policy affect taxpayers' incentives in a variety of ways, including their desire to work and save and their decisions to report taxable income, one crucial modeling assumption in this exercise is the assumed taxable income elasticity
The original papers in the taxable income elasticity
literature argue that income can be responsive to taxes even if saving and labor supply are relatively unresponsive (Lindsey 1987; Feldstein 1995).
The authors raise the possibility that the base-broadening provisions of TRA86 actually reduced the true taxable income elasticity
2017 Budgetary Impact: With Behavioral Response Policy Cost 2017 ($ billions) Double the Standard Deduction $94.7 Expand the 10% bracket $94.2 Expand the 15% bracket $95.1 Note: Taxable income elasticity