Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/211146
Authors: 
Blomquist, Nils Sören
Newey, Whitney K.
Kumar, Anil
Liang, Che-Yuan
Year of Publication: 
2019
Series/Report no.: 
cemmap working paper CWP53/19
Abstract: 
The taxable income elasticity is a key parameter for predicting the e?ect of tax reform or designing an income tax. Bunching at kinks and notches in a single budget set have been used to estimate the taxable income elasticity. We show that when the heterogeneity distribution is unrestricted the amount of bunching at a kink or a notch is not informative about the size of the taxable income elasticity, and neither is the entire distribution of taxable income for a convex budget set. Kinks do provide information about the size of the elasticity when a priori restrictions are placed on the heterogeneity distribution. They can identify the elasticity when the heterogeneity distribution is speci?ed across the kink and provide bounds under restrictions on the heterogeneity distribution. We also show that variation in budget sets can identify the taxable income elasticity when the distribution of preferences is unrestricted and stable across budget sets. For nonparametric utility with general heterogeneity we show that kinks only provide elasticity information about individuals at the kink and we give bounds analogous to those for isoelastic utility. Identi?cation becomes more di?cult with optimization errors We show in examples how results are a?ected by optimization errors.
Subjects: 
Bunching
kinks
notches
identification
taxable income
tax rates
expected value
heterogeneous preferences
JEL: 
C14
C24
H31
H34
J22
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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