Do Very High Tax Rates Induce Bunching? Implications for the Design of Income Contingent Loan Schemes
14 Pages Posted: 8 Oct 2009
Abstract
Under the Higher Education Contribution Scheme graduates face a sharp discontinuity in their taxable incomes. At the first repayment threshold, they are required to pay a percentage of their entire income to reduce their debts. This results in an extremely high effective marginal tax rate. Using a sample of taxpayer returns we investigate whether taxpayers bunch below the repayment threshold. We find a statistically significant degree of bunching below the threshold, but the effect is economically small. The result has important implications for the design of income contingent university loan schemes.
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Bruce James Chapman
Australian National University, Research School of Social Sciences (RSSS) - Economics Program ( email )
HC Coombs Building
Australian National University
Canberra, Australian Capital Territory 0200
Australia
Australian National University (ANU) - Crawford School of Public Policy
ANU College of Asia and the Pacific
J.G. Crawford Building, #132, Lennox Crossing
Canberra, Australian Capital Territory 0200
Australia
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Do Very High Tax Rates Induce Bunching? Implications for the Design of Income Contingent Loan Schemes
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