Change of Behaviour of High-Income Taxpayers: Income Bunching in the Last Kink Point of the Spanish Personal Income Tax (1982–2012)

This study examines the behavioral responses of high-income taxpayers in Spain to marginal tax rate changes at the final kink points of the Personal Income Tax (PIT) between 1982 and 2012. While prior research has documented significant bunching among low- and middle-income earners, evidence remains limited for high-income groups. Understanding their responsiveness is crucial for assessing the efficiency costs and distributional effects of progressive taxation. We apply the bunching estimation framework developed by Saez (2010), complemented by the bunching coefficient methodology proposed by Mortenson and Whitten (2020). Using administrative microdata from the Spanish Panel of Income Tax Filers, we analyze the density of taxable income within €1,000 bands around the relevant kink points. Subgroup analyses by employment type, region, and gender further explore potential heterogeneity in taxpayer behavior. The results indicate no significant evidence of bunching among high-income taxpayers over the analyzed period. Although minor instances of excess mass near kink points – especially in 1990 and 2011 – are detected, they fall below accepted thresholds of statistical significance. Disaggregated results by region and gender also do not reveal consistent behavioral adjustments. In 2011, some evidence of income shifting from labor to capital sources is observed, suggesting strategic tax planning rather than direct bunching. The findings suggest that Spanish high-income taxpayers predominantly respond to tax incentives through sophisticated planning strategies rather than simple income bunching. The relative absence of bunching implies limited behavioral distortions at the top of the income distribution, supporting the view that high marginal rates need not entail substantial efficiency losses. These insights inform tax policy design, emphasizing the need to address complex forms of tax avoidance rather than focusing solely on mechanical income adjustments.