Open AccessDigging Into the Channels of Bunching: Evidence from the Uruguayan Income Tax
Author(s) -
Marcelo Bérgolo,
Gabriel Burdín,
Mauricio De Rosa,
Matías Giaccobasso,
Martín Leites
Publication year - 2021
Publication title -
the economic journal/economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.683
H-Index - 160
eISSN - 1468-0297
pISSN - 0013-0133
DOI - 10.1093/ej/ueab002
Subject(s) - taxable income , international taxation , economics , state income tax , enforcement , income tax , point (geometry) , tax deduction , double taxation , gross income , labour economics , public economics , adjusted gross income , tax reform , monetary economics , accounting , law , geometry , mathematics , political science
Based on detailed administrative tax records, we implement a bunching design to explore how individual taxpayers respond to personal income taxation in Uruguay. We estimate a very modest elasticity of taxable income at the first kink point (0.06) driven by a combination of gross labour income and deduction responses. Taxpayers use personal deductions more intensively close to the kink point and underreport income to the tax authority. Our results suggest that the efficiency costs of taxation are not necessarily large in contexts characterised by limited deduction opportunities. Policy efforts should be directed at broadening the tax base and improving enforcement capacity.