The Ability Gradient in Bunching
34 Pages Posted: 8 May 2020
Date Written: April 2020
We analyze the relationship between cognitive ability and bunching in the context of a large and salient kink point of the Swedish income tax schedule. Using population-wide register data from the Swedish military enlistment and administrative tax records, we find that high-ability individuals bunch more than low-ability individuals. This ability gradient is stronger for the self-employed, but is also present among wage earners. We also use high-school GPA and math grades to analyze gender differences, finding a stronger ability gradient among men.
Keywords: ability, bunching, Complexity, optimal taxation, skills
JEL Classification: H21, H24, J22, J24
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