Bunching to Maximize Tax Credits: Evidence from Kinks in the U.S. Tax Schedule

55 Pages Posted: 23 Jan 2016 Last revised: 10 Nov 2016

Jacob A. Mortenson

Joint Committee on Taxation, US Congress

Andrew Whitten

U.S. Department of the Treasury - Office of Tax Analysis (OTA)

Date Written: November 2016

Abstract

We document bunching at tax kinks using a panel of 258 million income tax returns in the United States from 1996 to 2014. During this period, bunching grew by 700%. While most bunchers are self-employed, a substantial number of wage earners also bunch by misreporting income. The vast majority of bunching occurs at kinks maximizing tax credits, particularly at the kink that maximizes taxpayer refunds. Many taxpayers follow the refund-maximizing kink from year to year, selectively maximizing the appropriate tax credit(s). We argue that this behavior is incompatible with recently developed methods for identifying elasticities via bunching patterns.

Keywords: bunching; tax credits; tax evasion; public finance; self-employment

JEL Classification: H23, H24, H26, H31, J22

Suggested Citation

Mortenson, Jacob A. and Whitten, Andrew, Bunching to Maximize Tax Credits: Evidence from Kinks in the U.S. Tax Schedule (November 2016). Available at SSRN: https://ssrn.com/abstract=2719859

Jacob A. Mortenson

Joint Committee on Taxation, US Congress ( email )

Room 1625 Longworth House Office Building
Washington, DC 20515
United States

HOME PAGE: http://www.jacobmortenson.com

Andrew Whitten (Contact Author)

U.S. Department of the Treasury - Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave., N.W.
Washington, DC 22203
United States

HOME PAGE: http://rawhitten.com

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