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Tax penalties on fluctuating incomes: Estimates from longitudinal data

TitleTax penalties on fluctuating incomes: Estimates from longitudinal data
Year of Publication2018
AuthorsGordon, D. V., and Wen J-F.
JournalInternational Tax and Public Finance
Volume25
Pages430 - 457
Keywordsincome fluctuations, income tax, progressivity
Abstract

Progressive personal income taxes can cause individuals with fluctuating incomes to pay more taxes over time than individuals with constant incomes of the same average value. The implicit tax penalty violates principles of equity and may harm efficiency by discouraging risk-taking activities, such as entrepreneurship. This paper uses longitudinal data to estimate the tax penalties in six panels of Canadian data from 1993 to 2010. The effects of various income averaging policies for mitigating tax penalties are then examined.

URLhttps://link.springer.com/article/10.1007/s10797-017-9456-1
DOI10.1007/s10797-017-9456-1