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Effects of predictable tax liability variation on household labor income

The result's identifiers

  • Result code in IS VaVaI

    <a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F00216208%3A11640%2F12%3A00389691" target="_blank" >RIV/00216208:11640/12:00389691 - isvavai.cz</a>

  • Result on the web

    <a href="http://www.cerge-ei.cz/pdf/wp/Wp454.pdf" target="_blank" >http://www.cerge-ei.cz/pdf/wp/Wp454.pdf</a>

  • DOI - Digital Object Identifier

Alternative languages

  • Result language

    angličtina

  • Original language name

    Effects of predictable tax liability variation on household labor income

  • Original language description

    Economic theory assumes that taxpayers use their true marginal tax rate (MTR) to guide their economic decisions. However, due to complexity of the tax system, taxpayers may incorrectly perceive their MTR, with implications for incentives. We first develop an updating model that formalizes this conjecture. It predicts that an unexpected increase in the previous year's tax liability pushes up the perception of the MTR in the current year, even though the MTR does not, in fact, change. We then examine whether household labor income responds to predictable (but not necessarily predicted) lump-sum variation in the previous year's tax liability due to loss of eligibility for the Child Tax Credit when the eligible child turns 17. Using an identification strategy based on an eligibility discontinuity, we find that losing the credit reduces, ceteris paribus, parental labor income in the year following the loss of the credit. This result is robust to a variety of tests and different data sources

  • Czech name

  • Czech description

Classification

  • Type

    O - Miscellaneous

  • CEP classification

    AH - Economics

  • OECD FORD branch

Result continuities

  • Project

    <a href="/en/project/GAP402%2F10%2F2085" target="_blank" >GAP402/10/2085: Marginal Tax Rate Misperceptions</a><br>

  • Continuities

    I - Institucionalni podpora na dlouhodoby koncepcni rozvoj vyzkumne organizace

Others

  • Publication year

    2012

  • Confidentiality

    S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů