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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 39, No. 1, pp.35-72
ISSN: 1225-0279 (Print)
Print publication date 28 Feb 2026
Received 06 Dec 2025 Revised 09 Feb 2026 Accepted 11 Feb 2026
DOI: https://doi.org/10.22904/sje.2026.39.1.002

Net-of-Tax Elasticity of Taxable Income Among Top-Income Single Taxpayers in Taiwan

Shih-Ying Wu ; Wen-Chieh Wu
Shih-Ying Wu, Department of Economics, National Tsing Hua University, Hsinchu City, Taiwan wus@mx.nthu.edu.tw
Wen-Chieh Wu, Corresponding author, Department of Public Finance, National Chengchi University, Taipei City, Taiwan jackwu@nccu.edu.tw

JEL Classification: H24, H26, H31

Abstract

This study contributes to the literature by estimating the net-oftax elasticity of taxable income (ETI) for top-income single taxpayers in Taiwan. Taiwan is a newly developed economy characterized by high tax noncompliance, the absence of tax treaties with major economies, a large underground economy, and a substantial gap between the top personal and corporate income tax rates. Using two-stage least squares (2SLS) and difference-in-differences (DID) approaches, we show that the ETI estimates for taxable income and gross income in response to the 2015 tax reform are substantially higher in Taiwan than the corresponding estimates documented for developed Western economies and Japan. Results also indicate that the ETI is largest for taxable income, moderate for gross income, and smallest for wage income. This pattern suggests that behavioral responses among top-income single taxpayers in Taiwan are driven primarily by tax avoidance, particularly through income shifting, instead of changes in labor supply or wage earnings. The analysis further shows that taxpayers’ responses were strongest immediately following the reform but diminished over time. Lastly, the findings suggest that over longer adjustment horizons, taxable income becomes less sensitive (possibly because deductions and avoidance channels stabilize), whereas gross income continues to reflect gradual real behavioral adjustments.

Keywords:

net-of-tax elasticity, taxable income, top-income taxpayers, tax reform

Acknowledgments

The authors are grateful to Chiao-Su Lin and Yi-Kai Wang for their excellent research assistance. Shih-Ying Wu would like to thank the Ministry of Science and Technology of Taiwan for financially supporting this research under Grant MOST106-2410-H-007-010-MY2.

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