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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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Web page: http://www.nek.uu.se/
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Keywords: bunching; taxable income; bounds; optimization frictions;

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References

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  1. Jukka Pirttilä & Hakan Selin, 2011. "Tax Policy and Employment: How Does the Swedish System Fare?," CESifo Working Paper Series 3355, CESifo Group Munich.
  2. Feldstein, Martin, 1995. "The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 103(3), pages 551-72, June.
  3. Raj Chetty & John N. Friedman & Emmanuel Saez, 2013. "Using Differences in Knowledge across Neighborhoods to Uncover the Impacts of the EITC on Earnings," American Economic Review, American Economic Association, American Economic Association, vol. 103(7), pages 2683-2721, December.
  4. Bastani, Spencer & Selin, Håkan, 2011. "Bunching and Non-Bunching at Kink Points of the Swedish Tax schedule," Working Paper Series, Center for Fiscal Studies, Uppsala University, Department of Economics 2011:12, Uppsala University, Department of Economics.
  5. Raj Chetty & Emmanuel Saez, 2013. "Teaching the Tax Code: Earnings Responses to an Experiment with EITC Recipients," American Economic Journal: Applied Economics, American Economic Association, American Economic Association, vol. 5(1), pages 1-31, January.
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  7. Selin, Håkan, 2009. "Marginal tax rates and tax-favoured pension savings of the selfemployed Evidence from Sweden," Working Paper Series, Center for Fiscal Studies, Uppsala University, Department of Economics 2009:4, Uppsala University, Department of Economics.
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Citations

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Cited by:
  1. Jarkko Harju & Tuomas Matikka, 2014. "The Elasticity of Taxable Income and Income-Shifting: What is "Real" and What is Not?," CESifo Working Paper Series 4905, CESifo Group Munich.
  2. Bastani, Spencer & Selin, Håkan, 2011. "Bunching and Non-Bunching at Kink Points of the Swedish Tax schedule," Working Paper Series, Center for Fiscal Studies, Uppsala University, Department of Economics 2011:12, Uppsala University, Department of Economics.
  3. Daniel le Maire & Bertel Schjerningo, 2012. "Tax Bunching, Income Shifting and Self-employment," EPRU Working Paper Series, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics 2012-04, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  4. 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).
  5. Alstadsæter, Annette & Jacob, Martin, 2013. "Who participates in tax avoidance?," arqus Discussion Papers in Quantitative Tax Research 148, arqus - Arbeitskreis Quantitative Steuerlehre.
  6. 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.
  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, Oxford University Centre for Business Taxation 1313, Oxford University Centre for Business Taxation.
  9. Kanbur, Ravi & Keen, Michael, 2014. "Threshold, Informality, and Partitions of Compliance," Working Papers, Cornell University, Department of Applied Economics and Management 180136, Cornell University, Department of Applied Economics and Management.
  10. 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.
  11. Mazhar Waseem, 2013. "Taxes, Informality and Income Shifting: Evidence from a Recent Pakistani Tax Reform," 2013 Papers, Job Market Papers pwa641, Job Market Papers.

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