Maximum Likelihood Bunching Estimators of the ETI

Thomas Aronsson (thomas.aronsson@umu.se), Katharina Jenderny and Gauthier Lanot
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Thomas Aronsson: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden, https://www.umu.se/handelshogskolan

No 987, Umeå Economic Studies from Umeå University, Department of Economics

Abstract: We propose a maximum likelihood method to improve the bunching approach of estimating the elasticity of taxable income (ETI), and derive estimators for several model settings such as bunching with optimization frictions, notches, and heterogeneity in the ETI. Modelling optimization frictions explicitly, our estimators fit the data of several published studies very well. In the presence of a notch, the results can differ substantially from those obtained using the polynomial approach. If there is heterogeneity in the ETI, the elasticity among those who bunch exceeds the average elasticity in the population.

Keywords: Bunching Estimators; Elasticity of Taxable Income; Income Tax (search for similar items in EconPapers)
JEL-codes: C51 H24 H31 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2021-04-22
New Economics Papers: this item is included in nep-ecm and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:umnees:0987

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