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Do Very High Tax Rates Induce Bunching? Implications for the Design of Income Contingent Loan Schemes

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Author Info
BRUCE CHAPMAN
ANDREW LEIGH

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Abstract

Under 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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Article provided by The Economic Society of Australia in its journal Economic Record.

Volume (Year): 85 (2009)
Issue (Month): 3 (09)
Pages: 276-289
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Handle: RePEc:bla:ecorec:v:85:y:2009:i:3:p:276-289

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Leora Friedberg, 2000. "The Labor Supply Effects of the Social Security Earnings Test," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 48-63, February. [Downloadable!] (restricted)
  2. Emmanuel Saez, 1999. "Do Taxpayers Bunch at Kink Points?," NBER Working Papers 7366, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Chapman, Bruce, 1997. "Conceptual Issues and the Australian Experience with Income Contingent Charges for Higher Education," Economic Journal, Royal Economic Society, vol. 107(442), pages 738-51, May. [Downloadable!] (restricted)
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This page was last updated on 2009-11-28.

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