Identifying behavioral responses to tax reforms: New insights and a new approach

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We revisit the identification of behavioral responses to tax reforms and develop a new approach for graphical validation and representation of treatment effects. We show that the standard estimation strategy relies on an assumption of constant trend differentials. In the context of income taxation, this implies that differences in income trends across the income distribution should remain constant in the absence of tax reforms. Similar to pre-trend validation of differences-in-differences studies, we can validate this assumption by comparing the evolution of income in untreated parts of the income distribution. We illustrate our new approach by studying several tax reforms in Denmark. (JEL: C14 H30 J22).

Original languageEnglish
Article number104691
JournalJournal of Public Economics
Number of pages14
Publication statusPublished - Aug 2022

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© 2022 The Author(s)

    Research areas

  • Behavioral responses, Identification, Tax reforms, Validation

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