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Tax Responses at Low Taxable Incomes: Evidence from Germany

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  • Simeon Schächtele

Abstract

The desirability of a particular tax system depends on how different taxpayers react to it. Exploiting the personal allowance threshold and detailed German tax administration data, this paper examines responses at low taxable incomes to extend previous findings. Taxpayers bunch at the allowance threshold, and more so with non‐wage income. Unlike in other studies, wage earners also bunch, at least if they file a tax return, while incomes gross of deductions do not. Deductions account for a sizeable share of the sharp bunching mass of taxpayers with non‐wage income. A machine learning analysis identifies which deduction items predict such sharp bunching. The pattern of results suggests that local intensive‐margin real responses induce moderate deadweight loss.

Suggested Citation

  • Simeon Schächtele, 2020. "Tax Responses at Low Taxable Incomes: Evidence from Germany," Fiscal Studies, John Wiley & Sons, vol. 41(2), pages 411-439, June.
    • Handle: RePEc:wly:fistud:v:41:y:2020:i:2:p:411-439
    DOI: 10.1111/1475-5890.12220
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