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Digging Into the Channels of Bunching: Evidence from the Uruguayan Income Tax

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  • Marcelo Bergolo
  • Gabriel Burdin
  • Mauricio De Rosa
  • Matias Giaccobasso
  • Martin Leites

Abstract

Based on detailed administrative tax records, we implement a bunching design to explore how individual taxpayers respond to personal income taxation in Uruguay. We estimate a very modest elasticity of taxable income at the first kink point (0.06) driven by a combination of gross labour income and deduction responses. Taxpayers use personal deductions more intensively close to the kink point and underreport income to the tax authority. Our results suggest that the efficiency costs of taxation are not necessarily large in contexts characterised by limited deduction opportunities. Policy efforts should be directed at broadening the tax base and improving enforcement capacity.

Suggested Citation

  • Marcelo Bergolo & Gabriel Burdin & Mauricio De Rosa & Matias Giaccobasso & Martin Leites, 2021. "Digging Into the Channels of Bunching: Evidence from the Uruguayan Income Tax," The Economic Journal, Royal Economic Society, vol. 131(639), pages 2726-2762.
    • Handle: RePEc:oup:econjl:v:131:y:2021:i:639:p:2726-2762.
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    File URL: http://hdl.handle.net/10.1093/ej/ueab002
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    Cited by:

    1. Nazila Alinaghi & John Creedy & Norman Gemmell, 2023. "Do couples bunch more? Evidence from partnered and single taxpayers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(4), pages 1137-1184, August.
    2. Philippe Aghion & Maxime Gravoueille & Matthieu Lequien & Stefanie Stantcheva, 2017. "Tax Simplicity or Simplicity of Evasion? Evidence from Self-Employment Taxes in France," NBER Working Papers 24049, National Bureau of Economic Research, Inc.
    3. Emmanuel Flachaire & Nora Lustig & Andrea Vigorito, 2023. "Underreporting of Top Incomes and Inequality: A Comparison of Correction Methods using Simulations and Linked Survey and Tax Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 69(4), pages 1033-1059, December.
    4. Massenz, Gabriella, 2023. "On the behavioral effects of tax policy," Other publications TiSEM eb44a9f7-b859-480d-b2e4-4, Tilburg University, School of Economics and Management.
    5. Chan, Ho Fai & Gangl, Katharina & Supriyadi, Mohammad Wangsit & Torgler, Benno, 2023. "The effects of increased monitoring on high wealth individuals: Evidence from a quasi-natural experiment in Indonesia," Journal of Economic Behavior & Organization, Elsevier, vol. 215(C), pages 244-267.
    6. Samuel Bryson & Evaristo Mwale & Kwabena Adu-Ababio, 2024. "Minimum wage and tax kink effects in the formal and informal sector in Zambia," WIDER Working Paper Series wp-2024-10, World Institute for Development Economic Research (UNU-WIDER).
    7. Massenz, Gabriella, 2024. "Heterogeneity and Persistence in Tax Responsiveness: Evidence from Owner-Managed Companies," Working Paper Series 1503, Research Institute of Industrial Economics.

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