Tax Bunching at the Kink in the Presence of Low Capacity of Enforcement: Evidence from Uruguay

73 Pages Posted: 21 May 2019

See all articles by Marcelo Bergolo

Marcelo Bergolo

Universidad de la Republica - Instituto de Economía; IZA Institute of Labor Economics

Gabriel Burdin

University of Leeds - Leeds University Business School (LUBS); IZA Institute of Labor Economics

Mauricio de Rosa

affiliation not provided to SSRN

Matias Giaccobasso

University of California, Los Angeles (UCLA) - Anderson School of Management; Universidad de la Republica - Instituto de Economía

Martin Leites

Universidad de la República

Multiple version iconThere are 2 versions of this paper

Date Written: April 2019

Abstract

By using a bunching design on rich administrative tax records from Uruguay's tax agency we explore how individual taxpayers respond to personal income taxation in a context with high sheltering opportunities. We estimate a moderated elasticity of taxable income in the first kink point (0.16) driven by a combination of gross labor income and deductions responses. Taxpayers use personal deductions more intensively close to the kink point and undereport income unilaterally or through employer-employee collusion. Our results suggest that policy efforts should be directed at broadening the tax base and improving the enforcement capacities rather than eroding tax progressivity.

Keywords: deductions behavior, elasticity of labor income, tax bunching, personal income taxation, misreporting, developing economies

JEL Classification: H21, H24, H30, J22

Suggested Citation

Bergolo, Marcelo and Burdin, Gabriel and de Rosa, Mauricio and Giaccobasso, Matias and Leites, Martin, Tax Bunching at the Kink in the Presence of Low Capacity of Enforcement: Evidence from Uruguay (April 2019). IZA Discussion Paper No. 12286, Available at SSRN: https://ssrn.com/abstract=3390276

Marcelo Bergolo (Contact Author)

Universidad de la Republica - Instituto de Economía ( email )

Montevideo
Uruguay

HOME PAGE: http://www.iecon.ccee.edu.uy

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Gabriel Burdin

University of Leeds - Leeds University Business School (LUBS) ( email )

Leeds LS2 9JT
United Kingdom

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Mauricio De Rosa

affiliation not provided to SSRN

Matias Giaccobasso

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Universidad de la Republica - Instituto de Economía ( email )

Montevideo, Montevideo
Uruguay

Martin Leites

Universidad de la República ( email )

Avenida 18 de Julio 182
Montevideo, 11100
Uruguay

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