Do Very High Tax Rates Induce Bunching? Implications for the Design of Income Contingent Loan Schemes
AbstractUnder the Higher Education Contribution Scheme graduates face a sharp discontinuity in their taxable incomes. At the first repayment threshold, they are required to pay a percentage of their entire income to reduce their debts. This results in an extremely high effective marginal tax rate. Using a sample of taxpayer returns we investigate whether taxpayers bunch below the repayment threshold. We find a statistically significant degree of bunching below the threshold, but the effect is economically small. The result has important implications for the design of income contingent university loan schemes. Copyright © 2009 The Economic Society of Australia.
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Bibliographic InfoArticle provided by The Economic Society of Australia in its journal Economic Record.
Volume (Year): 85 (2009)
Issue (Month): 270 (09)
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Other versions of this item:
- Bruce Chapman & Andrew Leigh, 2006. "Do Very High Tax Rates Induce Bunching? Implications for the Design of Income-Contingent Loan Schemes," CEPR Discussion Papers 521, Centre for Economic Policy Research, Research School of Economics, Australian National University.
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
- H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
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