Premium
Tax Responses at Low Taxable Incomes: Evidence from Germany *
Author(s) -
Schächtele Simeon
Publication year - 2020
Publication title -
fiscal studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.63
H-Index - 40
eISSN - 1475-5890
pISSN - 0143-5671
DOI - 10.1111/1475-5890.12220
Subject(s) - taxable income , allowance (engineering) , economics , margin (machine learning) , wage , labour economics , tax deduction , monetary economics , state income tax , gross income , tax reform , public economics , accounting , operations management , machine learning , computer science
The desirability of a particular tax system depends on how different taxpayers react to it. Exploiting the personal allowance threshold and detailed German tax administration data, this paper examines responses at low taxable incomes to extend previous findings. Taxpayers bunch at the allowance threshold, and more so with non‐wage income. Unlike in other studies, wage earners also bunch, at least if they file a tax return, while incomes gross of deductions do not. Deductions account for a sizeable share of the sharp bunching mass of taxpayers with non‐wage income. A machine learning analysis identifies which deduction items predict such sharp bunching. The pattern of results suggests that local intensive‐margin real responses induce moderate deadweight loss.