Bunching and Non-Bunching at Kink Points of the Swedish Tax Schedule

By Spencer Bastani, H̊akan Selin. Social Science Research Network, 2012

203 citations recorded by the source corpus.

Recent microeconometric studies of taxpayers’ responsiveness to taxation have shown that intensive margin labor supply and earnings elasticities typically are modest and sometimes equal to zero. However, a common view is that long-run responses might still be large since micro-estimates are downward biased owing to optimization frictions. In this paper we estimate the taxable income elasticity at a very large kink point of the Swedish tax schedule using the bunching method. During the period of study the change in the log net-of-tax rate reached a maximum value of 45.6%. Interestingly, we obtain a precise elasticity estimate of zero for wage earners at this large kink. The size of the kink allows us to derive tighter bounds on the long-run elasticity than previous studies. If wage earners on average tolerate 1% of their disposable income in optimization costs, the upper bound on the long-run taxable income elasticity is 0.39. We also evaluate the performance of the bunching estimator by performing Monte Carlo simulations.

Subfields: Economics and Econometrics, Gender Studies

View Paper: https://www.semanticscholar.org/paper/9fb6d4d16ad2065a51536f1f0a9d241c5e59fe3e

How researchers see this paper

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In Economics and Econometrics

1. Daniel le Maire
2. Laurent Simula
3. Soren Blomquist
4. Bertel Schjerning
5. C. Weber

In Gender Studies

1. Daniel le Maire
2. Laurent Simula
3. Soren Blomquist
4. Bertel Schjerning
5. C. Weber

Citations in the corpus

• Tax Bunching, Income Shifting and Self-employment (2013, background): “Since Feldstein (1995, 1999), the behavioral response of taxable income to changes in marginal tax rates has been seen as the central parameter in the formulation of tax and transfer policies. A large empirical literature has therefore focused on estimating the taxable income elasticity.1 In a semin”
• Marginal deadweight loss when the income tax is nonlinear (2019, background): “Bastani and Selin (2011), studying the Swedish tax system, find very little bunching. We see several possible explanations for the fact that few people are observed at kink points. A first explanation is that the compensated elasticity is much smaller than often assumed. A second explanation, which ”