Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1333: The Ability Gradient in Bunching

Daniel Waldenström () and Spencer Bastani ()
Additional contact information
Daniel Waldenström: Research Institute of Industrial Economics (IFN), Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Spencer Bastani: Department of Economics and Statistics, Postal: Linnaeus University

Abstract: We analyze the relationship between cognitive ability and bunching in the context of a large and salient kink point of the Swedish income tax schedule. Using population-wide register data from the Swedish military enlistment and administrative tax records, we find that high-ability individuals bunch more than low-ability individuals. This ability gradient is stronger for the self-employed, but is also present among wage earners. We also use high-school GPA and math grades to analyze gender differences, finding a stronger ability gradient among men.

Keywords: Bunching; Ability; Skills; Complexity; Optimal Taxation

JEL-codes: H21; H24; J22; J24

32 pages, April 22, 2020

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