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The Effect of Flat Tax Rates on Taxable Income: Evidence from the Illinois Rate Increase

Thomas Luke Spreen

Abstract:

The state of Illinois temporarily increased its flat individual income tax rate from 2011 to 2014. This paper evaluates taxpayer responses following the rate increase and subsequent decrease using a synthetic control matching strategy with data from the American Community Survey. The analysis shows Illinois taxable income declined following the tax increase with significant income retiming in anticipation of the sunset of the elevated rate in 2015. The identified responses were driven by tax units in the top decile of the income distribution.

Citation

Thomas Luke Spreen (2018), The Effect of Flat Tax Rates on Taxable Income: Evidence from the Illinois Rate Increase , National Tax Journal, 71:2, pp. 231-262

DOI: doi.org/10.17310/ntj.2018.2.02