Dr. Jim Landers: Elasticity of the Individual Income Tax Base

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Dr. Landers speaking at Ball State Ecoomics Club (4/16/2014)

On Wednesday, April 16th, 2014, Dr. Jim Landers, director of the Office of Fiscal and Management Analysis at the statehouse, came to talk to the Economics Club.  Along with his work at the statehouse, Dr. Landers also teaches a finance course at Northwestern University and an online statistics course.  His line of work is concerned with figuring out how changing the tax rate will alter tax revenue.  In theory, he is looking at the optimal point on the Laffer Curve by using a behavioral estimate for taxpayers.

Dr. Landers uses simple econometric models to estimate the tax revenue for a given tax rate.  He uses a logarithmic function for the purpose of analyzing elasticity.  He uses county level panel data (multi-dimentsional) in forming his model, which allows for greater depth in analysis.  He uses the county and the state income tax to estimate the the linear regression model for the tax revenue generated.  Some cases that affect the result of his model include people making purchases over the border and how taking more money via higher tax rates balance with the amount of money people are left with to spend in the state.   Dr. Landers provided some excellent economic/fiscal literature on the topic of tax rates which can be found in the links below.

Quote to remember: “Variations in labor supply are not the same as variations in taxable labor income.” (Feldstein(1995))

Link to the Indiana General Assembly website.

Feldstein (1995) “The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act”

Bruce, Deskins, and Fox (2006) “On the Relative Distortions of State Sales and Corporate Income Taxes”

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