September 29, 2016

A Data-Driven Procedure to Determine the Bunching Window - An Application to the Netherlands

This paper presents empirical evidence on taxpayers' responsiveness to taxation by estimating the compensated elasticity of taxable income with respect to the net-of-tax rate in the Netherlands.

Applying the bunching approach introduced by Saez (2010), we fi nd clear evidence of bunching behaviour at the thresholds of the Dutch tax schedule with a precise estimated elasticity of 0.023 at the upper threshold. In line with the literature, we fi nd much larger estimates for women and self-employed individuals. We also identify signi cant bunching behaviour for individuals in paid employment which we attribute to tax deductions for couples. This paper adds to the literature on bunching by proposing the use of information criteria to determine the counterfactual model, and by the development of an
intuitive, data-driven procedure to determine the bunching window.

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Nicole Bosch Read more

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