Taxpayer responsiveness to taxation: Evidence from bunching at kink points of the South African income tax schedule

I apply the bunching methodology to South African administrative tax data over the period from 2011 to 2017 to investigate the responsiveness of individual taxpayers to changes in marginal personal income tax rates. I find significant evidence of bunching among the self-employed but no evidence of bunching among wage earners. Among the self-employed, bunching is greatest at the highest kink in the income tax schedule and smallest at the lowest kink. Female self-employed exhibit greater bunching behaviour than male self-employed, and responsiveness appears to decrease with age. The responsiveness of the self-employed appears to be due to tax avoidance by shifting income into future periods through retirement fund deductions, as well as a real labour supply response. Despite the significant excess bunching observed, the implied elasticities of taxable income–under the assumption of a uniform heterogeneity distribution around the kink–are not very large.

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Publication Details

Journal
ERSA Working Paper Series
Published
2024-09-20
DOI
https://doi.org/10.71587/7m53pa41
Citations
1
Primary Topic
Taxation and Compliance Studies
Type
article
Field-Weighted Citation Impact
0.00
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article

Taxpayer responsiveness to taxation: Evidence from bunching at kink points of the South African income tax schedule

1 citations
ERSA Working Paper Series
Taxation and Compliance Studies
article

Taxpayer responsiveness to taxation: Evidence from bunching at kink points of the South African income tax schedule

article en
1 citations

Abstract

I apply the bunching methodology to South African administrative tax data over the period from 2011 to 2017 to investigate the responsiveness of individual taxpayers to changes in marginal personal income tax rates. I find significant evidence of bunching among the self-employed but no evidence of bunching among wage earners. Among the self-employed, bunching is greatest at the highest kink in the income tax schedule and smallest at the lowest kink. Female self-employed exhibit greater bunching behaviour than male self-employed, and responsiveness appears to decrease with age. The responsiveness of the self-employed appears to be due to tax avoidance by shifting income into future periods through retirement fund deductions, as well as a real labour supply response. Despite the significant excess bunching observed, the implied elasticities of taxable income–under the assumption of a uniform heterogeneity distribution around the kink–are not very large.

ERSA Working Paper Series
University of Cape Town (ZA)
Decent work and economic growth
Openalex Percentile: Top 57%
Taxation and Compliance Studies
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Taxpayer responsiveness to taxation: Evidence from bunching at kink points of the South African income tax schedule · ERSA Working Paper Series (2024) | TGRS Research Map | TGRS