Do Very High Tax Rates Induce Bunching? Implications for the Design of Income Contingent Loan Schemes
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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Volume (Year): 85 (2009)
Issue (Month): 270 (September)
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