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Who Understands The French Income Tax? Bunching Where Tax Liabilities Start

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  • R. LARDEUX

    (Insee)

Abstract

Lack of tax transparency may strongly impact taxpayers' behavior. This paper disentangles responses to incentives from attention to taxes at the level where French income tax liabilities start. When reporting their earnings, tax filers may be confused between two potential thresholds: the true Tax Collection Threshold (TCT), a notch, and a wrong Taxation Threshold (TT), which is a kink. Using a comprehensive dataset on individual income tax returns from 2008 to 2015, I highlight significant bunching in the taxable income distribution at both thresholds. Within a model of tax misperception, I estimate that taxpayers are far from paying full attention to the income tax system, yet display strong reactions to the marginal tax rate they perceive. This framework can account for behavioral responses to a rise in the virtual marginal tax rate at the wrong threshold and may prove useful to detect policies improving attention to taxes. Contrasting hard-copy and online tax filers, the misperception model reveals a better understanding of the tax system by the latter.

Suggested Citation

  • R. Lardeux, 2018. "Who Understands The French Income Tax? Bunching Where Tax Liabilities Start," Documents de Travail de l'Insee - INSEE Working Papers g2018-04, Institut National de la Statistique et des Etudes Economiques.
    • Handle: RePEc:nse:doctra:g2018-04
    as

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    File URL: https://www.bnsp.insee.fr/ark:/12148/bc6p06zrg17/f1.pdf
    File Function: Document de travail de la DESE numéro G2018/04
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    Cited by:

    1. Michaël Sicsic, 2022. "Does labour income react more to income tax or means‐tested benefits reforms?," Fiscal Studies, John Wiley & Sons, vol. 43(3), pages 291-319, September.
    2. Elizabeth Lyon & J. R. Catlin, 2020. "Consumer Misconceptions about Tax Laws: Results from a Survey in the United States," Journal of Consumer Policy, Springer, vol. 43(4), pages 807-828, December.

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    More about this item

    Keywords

    Income tax; bunching; attention; misperception; Internet;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law

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