Individual Taxpayer Response to Tax Cuts 1982-1984 with Implications forthe Revenue Maximizing Tax Rate

Lawrence B. Lindsey

NBER Working Paper No. 2069
Issued in December 1986
NBER Program(s):Public Economics

The Economic Recovery Tax Act of 1981 mandated a series of tax rate reductions for the period 1982-1984. They represented the most significant changes in the tax rate structure in nearly two decades. This paper considers the response of taxpayers to these cuts and extends these results to estimate the revenue maximizing top tax rate for the personal income tax The methodological emphasis of this paper is to create a baseline income distribution to describe what level and distribution of income could be expected in the absence of tax changes. This baseline is then compared with actual tax return data to measure the change in taxpayer behavior. Throughout this study the National Bureau of Economic Research's TAXSIM model was used to perform the detailed microsimulation work. This paper finds that at least one sixth, and probably one quarter, of the revenue loss ascribable to the 1981 tax law changes was recouped by changes in taxpayer behavior over the period 1982-1984. It concludes that under the tax base of that period, federal income tax revenue would be maximized at a tax rate of about 35 percent, and total income tax revenue maximized at a total tax rate of 40 percent. The findings also suggest that personal income averaged as much as 2 percent higher than it otherwise would have been as a result of the behavioral response of taxpayers to lower tax rates.

download in pdf format
   (421 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w2069

Published: Lindsey, Lawrence B., 1987. "Individual taxpayer response to tax cuts: 1982-1984 : With implications for the revenue maximizing tax rate," Journal of Public Economics, Elsevier, vol. 33(2), pages 173-206, July.

Users who downloaded this paper also downloaded* these:
Roubini and Milesi Ferretti w4881 Taxation and Endogenous Growth in Open Economies
Hool and Richardson w0571 International Trade, Indebtedness, and Welfare Repercussions among Supply-Constrained Economies under Floating Exchange Rates
Kydland and Prescott A Competitive Theory of Fluctuations and the Feasibility and Desirability of Stabilization Policy
Lebergott Labor Force and Employment, 1800–1960
Lindsey w1760 Taxpayer Behavior and the Distribution of the 1982 Tax Cut
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us