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Taxpayer responsiveness to taxation: Evidence from bunching at kink points of the South African income tax schedule

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  • Neryvia Pillay

    (University of Cape Town)

Abstract

I apply the bunching methodology to South African administrative tax data over the period from 2011 to 2017 to investigate the responsiveness of individual taxpayers to changes in marginal personal income tax rates. I find significant evidence of bunching among the self-employed but no evidence of bunching among wage earners. Among the self-employed, bunching is greatest at the highest kink in the income tax schedule and smallest at the lowest kink. Female self-employed exhibit greater bunching behaviour than male self-employed, and responsiveness appears to decrease with age. The responsiveness of the self-employed appears to be due to tax avoidance by shifting income into future periods through retirement fund deductions, as well as a real labour supply response. Despite the significant excess bunching observed, the implied elasticities of taxable income–under the assumption of a uniform heterogeneity distribution around the kink–are not very large.

Suggested Citation

  • Neryvia Pillay, 2021. "Taxpayer responsiveness to taxation: Evidence from bunching at kink points of the South African income tax schedule," ERSA Working Paper Series 75, Economic Research Southern Africa.
    • Handle: RePEc:rza:ersawp:75
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • I2 - Health, Education, and Welfare - - Education
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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