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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
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Fax: + 46 18 471 14 78
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Keywords: bunching; taxable income; bounds; optimization frictions;

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  1. Raj Chetty & John N. Friedman & Tore Olsen & Luigi Pistaferri, 2009. "Adjustment Costs, Firm Responses, and Micro vs. Macro Labor Supply Elasticities: Evidence from Danish Tax Records," NBER Working Papers 15617, National Bureau of Economic Research, Inc.
  2. Selin, Håkan, 2009. "Marginal tax rates and tax-favoured pension savings of the selfemployed Evidence from Sweden," Working Paper Series, Center for Fiscal Studies 2009:4, Uppsala University, Department of Economics.
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  12. Spencer Bastani & Håkan Selin, 2012. "Bunching and Non-Bunching at Kink Points of the Swedish Tax Schedule," CESifo Working Paper Series 3865, CESifo Group Munich.
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Cited by:
  1. Kreiner, Claus Thustrup & Munch, Jakob R. & Whitta-Jacobsen, Hans Jørgen, 2014. "Taxation and the Long Run Allocation of Labor: Theory and Danish Evidence," IZA Discussion Papers 8246, Institute for the Study of Labor (IZA).
  2. Doerrenberg, Philipp & Duncan, Denvil, 2013. "Experimental Evidence on the Relationship between Tax Evasion Opportunities and Labor Supply," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80041, Verein für Socialpolitik / German Economic Association.
  3. Alstadsæter, Annette & Jacob, Martin, 2013. "Who participates in tax avoidance?," arqus Discussion Papers in Quantitative Tax Research 148, arqus - Arbeitskreis Quantitative Steuerlehre.
  4. 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.
  5. 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.
  6. Spencer Bastani & Håkan Selin, 2012. "Bunching and Non-Bunching at Kink Points of the Swedish Tax Schedule," CESifo Working Paper Series 3865, CESifo Group Munich.
  7. Daniel le Maire & Bertel Schjerningo, 2012. "Tax Bunching, Income Shifting and Self-employment," EPRU Working Paper Series 2012-04, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  8. Mazhar Waseem, 2013. "Taxes, Informality and Income Shifting: Evidence from a Recent Pakistani Tax Reform," 2013 Papers pwa641, Job Market Papers.
  9. 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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