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Bunching and Non-Bunching at Kink Points of the Swedish Tax schedule

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  • Bastani, Spencer

    ()
    (Uppsala Center for Fiscal Studies)

  • Selin, Håkan

    ()
    (Uppsala Center for Fiscal Studies)

Abstract

The compensated taxable income elasticity at a given income level is proportional to the number of individuals who bunch at a convex kink point. This holds true even in the presence of optimization frictions if the jump in marginal tax rates is suciently large. In this paper we estimate bunching of taxpayers at a very large kink point of the Swedish tax schedule. During the period of study the change in the log net-of-tax rate reached a maximum value of 45.6%. Interestingly, we nd no economically signi cant bunching of wage earners at this large kink. Self-employed individuals, on the other hand,display clear bunching, but the implied elasticities are not very large. Following Chetty (2011) we calculate an upper bound on the structural elasticity for wage earners consistent with our estimate. If wage earners on average tolerate 1% of their disposable income in optimization costs, the upper bound on the taxable income elasticity is 0.39. We also evaluate the performance of the bunching estimator by performing Monte Carlo simulations.

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Bibliographic Info

Paper provided by Uppsala University, Department of Economics in its series Working Paper Series, Center for Fiscal Studies with number 2011:12.

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Length: 44 pages
Date of creation: 12 Dec 2011
Date of revision:
Handle: RePEc:hhs:uufswp:2011_012

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Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
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Keywords: bunching; taxable income; bounds; optimization frictions;

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  1. Blomquist, Sören & Selin, Håkan, 2010. "Hourly wage rate and taxable labor income responsiveness to changes in marginal tax rates," Journal of Public Economics, Elsevier, vol. 94(11-12), pages 878-889, December.
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Citations

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Cited by:
  1. le Maire, Daniel & Schjerning, Bertel, 2013. "Tax bunching, income shifting and self-employment," Journal of Public Economics, Elsevier, vol. 107(C), pages 1-18.
  2. Doerrenberg, Philipp & Duncan, Denvil, 2012. "Experimental Evidence on the Relationship between Tax Evasion Opportunities and Labor Supply," IZA Discussion Papers 6914, Institute for the Study of Labor (IZA).
  3. Bastani, Spencer & Selin, Håkan, 2014. "Bunching and non-bunching at kink points of the Swedish tax schedule," Journal of Public Economics, Elsevier, vol. 109(C), pages 36-49.
  4. Alstadsæter, Annette & Jacob, Martin, 2013. "Who participates in tax avoidance?," arqus Discussion Papers in Quantitative Tax Research 148, arqus - Arbeitskreis Quantitative Steuerlehre.
  5. Jacob, Martin & Alstadsæter, Annette, 2013. "Payout policies of privately held firms: Flexibility and the role of income taxes," arqus Discussion Papers in Quantitative Tax Research 152, arqus - Arbeitskreis Quantitative Steuerlehre.
  6. Mazhar Waseem, 2013. "Taxes, Informality and Income Shifting: Evidence from a Recent Pakistani Tax Reform," 2013 Papers pwa641, Job Market Papers.
  7. Almunia, Miguel & Lopez-Rodriguez, David, 2012. "The efficiency cost of tax enforcement: evidence from a panel of spanish firms," MPRA Paper 44153, University Library of Munich, Germany.
  8. Jarkko Harju & Tuomas Matikka, 2013. "The elasticity of taxable income and income-shifting between tax bases: what is “real” and what is not?," Working Papers 1313, Oxford University Centre for Business Taxation.

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