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Income Reporting and the Phaseout of Exemptions

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  • Charles R. Enis

    (Pennsylvania State University)

Abstract

This study investigates taxpayer behavior in response to the phaseout of exemptions. This provision implicitly creates fifty $2,500 intervals based on the adjusted gross income (AGI) of high-income taxpayers. Certain individuals can save taxes by adjusting AGI to fall near the top of the previous interval. Thus, the distribution of their reported AGI is hypothesized to be disproportionately greater near the top of these intervals. This study uses tax return data with univariate tests to detect this “bunching effect†and logit models to profile taxpayer attributes that are associated with this behavior. Revenue and efficiency estimates are also addressed. Understanding responses to phaseouts is important as the tax system uses such to unobtrusively raise revenues and target incentives. This bunching effect was observed for the third and fourth years following enactment.However, no bunching was observed for the first two years or for the fifth year following enactment.

Suggested Citation

  • Charles R. Enis, 2005. "Income Reporting and the Phaseout of Exemptions," Public Finance Review, , vol. 33(5), pages 543-574, September.
    • Handle: RePEc:sae:pubfin:v:33:y:2005:i:5:p:543-574
    DOI: 10.1177/1091142105278643
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    References listed on IDEAS

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