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

Neryvia Pillay ()
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Neryvia Pillay: University of Cape Town

No 75, ERSA Working Paper Series from Economic Research Southern Africa

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.

Keywords: Taxation; South Africa (search for similar items in EconPapers)
JEL-codes: H2 H24 I2 O1 O12 O4 (search for similar items in EconPapers)
Date: 2024-09
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Published in ERSA Working Paper Series, September 2024

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