This paper uses the interwar United States as a laboratory for investigating the incentive effects of marginal income tax rates. We examine the impact of the large changes in rates in this period on taxable income using time-series/cross-section analysis of data by small slices of the income distribution. We find that the effect operated in the expected direction but was economically small, and that it is precisely estimated and highly robust. We also find suggestive time-series evidence of a positive impact of marginal rate cuts on business formation, but no evidence of an important effect on other indicators of investment.
Romer, Christina D., and David H. Romer.
"The Incentive Effects of Marginal Tax Rates: Evidence from the Interwar Era."
American Economic Journal: Economic Policy,
Personal Income, Wealth, and Their Distributions
Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
Fiscal Policies and Behavior of Economic Agents: Household
New Firms; Startups
Economic History: Government, War, Law, International Relations, and Regulation: U.S.; Canada: 1913-