Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/200336 
Year of Publication: 
2017
Series/Report no.: 
IFS Working Papers No. W17/14
Publisher: 
Institute for Fiscal Studies (IFS), London
Abstract: 
We investigate bunching at personal tax thresholds over a 40-year period. At kinks, where the marginal tax rate rises, we find bunching among company owner-managers and the self-employed, but not those with only employment income. Notches, where the average rate rises, provide compelling evidence that this is because most employees face substantial frictions: fewer than a quarter bunch even where doing so would increase consumption and leisure. We develop a new approach for identifying selection in who responds and for decomposing responses into hours and wage components. We find that employees who bunch at notches are higher-hours, lower-wage, part-time workers.
Subjects: 
Behavioural response
income tax
social security contributions
optimisation frictions
elasticity of taxable income
JEL: 
H20
H24
J22
Document Type: 
Working Paper

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