Scandinavian Working Papers in Economics

Working Paper Series, Center for Fiscal Studies,
Uppsala University, Department of Economics

No 2011:12: Bunching and Non-Bunching at Kink Points of the Swedish Tax schedule

Spencer Bastani () and Håkan Selin ()
Additional contact information
Spencer Bastani: Uppsala Center for Fiscal Studies, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
Håkan Selin: Uppsala Center for Fiscal Studies, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

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

JEL-codes: H21; H42

44 pages, December 12, 2011

Full text files

wp201112ucfs.pdf PDF-file 

Download statistics

Questions (including download problems) about the papers in this series should be directed to Katarina Grönvall ()
Report other problems with accessing this service to Sune Karlsson ().

This page generated on 2024-02-05 17:13:54.