Nature of transfers, income tax function and empirical estimation of elasticity of taxable income for Brazil

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Resumo/Abstract: 

This paper aims to estimate the elasticity of taxable income (ETI), taking into account the nature of transfers and their use as a redistribution package (involving cash and in-kind transfers) to households in Brazil. Our contributions are twofold. First, we provide a simple model with balanced-budget government that reveals the role played by cash and in-kind transfers on the labor supply (and income tax revenues thereof). Next, in order to estimate ETI in the presence of cash and in-kind transfers Brazilian population surveys (PNAD) are used to explore a limited tax reform that was implemented between 1997 and 1998. This reform only affected the higher income tax bracket. Our findings suggest that in-kind (cash) transfers are positively (negatively) associated with reported taxable income and precise estimation of ETI requires estimates of both types of transfers. Last, we estimate the ETI for Brazil is in therange from 0.4 to 1.3 not different from those that maximize income tax revenues.

Ano de Conclusão/Year of Conclusion: 
Em andamento/In Progress
Co-pesquisadores associados/Co-Associated Researchers: 
<p>Rafael Terra</p>
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