Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/83586 
Year of Publication: 
2011
Series/Report no.: 
MNB Working Papers No. 2011/11
Publisher: 
Magyar Nemzeti Bank, Budapest
Abstract: 
The paper studies how high-income taxpayers responded to the introduction of the 'extraordinary tax on individuals' in Hungary in 2007. The study is based on a panel of tax returns compiled by the Hungarian Tax Authority for the purposes of this study, containing information on 10 percent of tax-filers from 2005 and three subsequent years. We estimate the elasticity of taxable income with respect to the marginal net-of-tax rate and find that the taxable income of Hungarian high earners is moderately responsive to taxation: the estimated elasticity is about 0.2. This means that if the upper tax rate of the 2010 Hungarian tax system were increased by a small amount, the behavioral response of taxpayers would reduce the additional tax revenue by about 60 percent. We find evidence suggesting that the elasticity is a reflection of a labor supply response to the tax change on the intensive margin, and not a reflection of tax shifting, avoidance or evasion.
Subjects: 
taxable income elasticity
personal income tax
tax avoidance
JEL: 
H20
H24
H31
J22
Document Type: 
Working Paper

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