The Effect of Marginal Tax Rates on Income: A Panel Study of 'Bracket Creep'

Emmanuel Saez

NBER Working Paper No. 7367
Issued in September 1999
NBER Program(s):Public Economics Program

This paper uses a panel of individual tax returns and the `bracket creep' as source of tax rate variation to construct instrumental variables estimates of the sensitivity of income to changes in tax rates. From 1979 to 1981, the US income tax schedule was fixed in nominal terms while inflation was high (around 10%). This produced a real change in tax rate schedules. Taxpayers near the top-end of a tax bracket were more likely to creep to a higher bracket and thus experience a rise in marginal rates the following year than the other taxpayers. Compensated elasticities can be estimated by comparing the differences in changes in income between taxpayers close to the top-end of a tax bracket to the other taxpayers. These estimates, based on comparisons between very similar groups, are robust to underlying changes in the income distribution, such as a rise in inequality. The elasticities found are higher than those derived in labor supply studies but smaller than those found previously with the same kind of tax returns data.

download in pdf format
   (398 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w7367

Published: Saez, Emmanuel. "The Effect Of Marginal Tax Rates On Income: A Panel Study Of 'Bracket Creep'," Journal of Public Economics, 2003, v87(5-6,May), 1231-1258. citation courtesy of

Users who downloaded this paper also downloaded* these:
Saez, Slemrod, and Giertz w15012 The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review
Feldstein w4496 The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the1986 Tax Reform Act
Feenberg and Poterba Income Inequality and the Incomes of Very High-Income Taxpayers: Evidence from Tax Returns
Saez w7628 Using Elasticities to Derive Optimal Income Tax Rates
Saez w10273 Reported Incomes and Marginal Tax Rates, 1960-2000: Evidence and Policy Implications
NBER Videos

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

Contact Us