Bunching to Maximize Tax Credits: Evidence from Kinks in the U.S. Tax Schedule
42 Pages Posted: 23 Jan 2016 Last revised: 2 Feb 2018
Date Written: January 2018
We explore bunching at U.S. income tax kinks using a panel of 257 million tax returns from 1996 to 2014. The vast majority of bunching occurs at kinks maximizing tax credits, and 71% of bunchers locate at the unique point that maximizes refunds. This behavior appears to be inconsistent with individuals responding proportionally to changes in marginal rates, an assumption underlying recently developed methods for identifying tax elasticities through bunching. In our sample period, the number of bunchers at refund-maximizing kinks increased by 538%: from 90,000 taxpayers in 1996 to 574,000 in 2014.
Keywords: bunching; tax credits; tax evasion; public finance; self-employment
JEL Classification: H23, H24, H26, H31, J22
Suggested Citation: Suggested Citation