Working Paper Series, Uppsala Center for Fiscal Studies, Department of Economics, Uppsala University
Bunching and Non-Bunching at Kink Points of the Swedish Tax schedule
() and Håkan Selin
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.
Keywords: bunching; taxable income; bounds; optimization frictions; (follow links to similar papers)
JEL-Codes: H21; H42; (follow links to similar papers)
44 pages, December 12, 2011
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