Scandinavian Working Papers in Economics

Umeå Economic Studies,
Umeå University, Department of Economics

No 1046: Taxing the Unresponsive: The Micro-Macro Puzzle and the Elasticity of Taxable Income

Paul Bingley () and Gauthier Lanot ()
Additional contact information
Paul Bingley: VIVE - The Danish Center for Social Science Research, Postal: Herluf Trolles Gade 11, 1052 Copenhagen K, Denmark.
Gauthier Lanot: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden

Abstract: We estimate the elasticity of taxable income (ETI) in Denmark from 1980 to 2022 using a consistent bunching design. Leveraging six distinct tax regimes, we document that behavioral responses depend crucially on employment status and the tax base definition. While employees exhibit negligible responsiveness (ETI ≈ 0.01) across all regimes, the self-employed show larger, variable elasticities (0.05–0.45) that track opportunities for income shifting. For job changers and by the composition of capital income, we show that small employee elasticities reflect institutional constraints on reported income rather than infrequent adjustment, explaining why aggregate bunching elasticities are smaller than macro estimates.

Keywords: Elasticity of Taxable Income; Micro-Macro Puzzle; Third-Party Reporting; Income Shifting; Bunching

JEL-codes: H24; H26; H31; J22

Language: English

51 pages, May 7, 2026

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