The Impact of Tax System Complexity on the Share of Income Held by Top 1% income Earners

This thesis examines the existing literature that studies the elasticity of taxable income of top 1% income earners. The paper’s contribution is constructing a preliminary tax complexity index and examining its impact on the elasticity of taxable income. Plotting elasticity estimates of OECD countries against tax complexity index shows their negative correlation and confirms a hypothesis that countries with more complex tax systems have higher elasticities of taxable income. Regressing top 1% income share of OECD countries on net-of-tax rate and tax complexity index shows a small positive impact of tax complexity on income held by top 1% earners.