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

Nicole Bosch, Vincent Dekker and Kristina Strohmaier

No 336, CPB Discussion Paper from CPB Netherlands Bureau for Economic Policy Analysis

Abstract: 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 find 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 find much larger estimates for women and self-employed individuals. We also identify signicant 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.

JEL-codes: H21 H24 (search for similar items in EconPapers)
Date: 2016-09
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Citations: View citations in EconPapers (9)

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