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

Marcelo Bergolo, Gabriel Burdín, Mauricio De Rosa (), Matias Giaccobasso () and Martin Leites ()
Additional contact information
Mauricio De Rosa: Universidad de la República, Uruguay
Matias Giaccobasso: University of California, Los Angeles
Martin Leites: Universidad de la República, Uruguay

No 12286, IZA Discussion Papers from Institute of Labor Economics (IZA)

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 (search for similar items in EconPapers)
JEL-codes: H21 H24 H30 J22 (search for similar items in EconPapers)
Pages: 75 pages
Date: 2019-04
New Economics Papers: this item is included in nep-lam, nep-lma, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published - revised version published in: Economic Journal, 2021, 131 (639), 2726 - 2762.

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Working Paper: Tax bunching at the Kink in the Presence of Low Capacity of Enforcement: Evidence From Uruguay (2019)
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