The elasticity of taxable income of low-income earners: bunching evidence from Spain
Melbourne Institute Working Paper No. 18/22
Date: November 2022
Author(s):
Abstract
This paper estimates the elasticity of taxable income (ETI) for Spain. Using the bunching approach and administrative tax data from 2008 to 2017, we find evidence of bunching at the first tax kink (ETI=0.7) and missing mass around the second tax kink (ETI=0.4). Even though we detect heterogeneity in responses depending on taxpayers' personal and family circumstances, bunching and missing mass are mostly related to labour income. The main mechanism of response for bunching is associated with the use of certain deductions and allowances, while missing mass is driven by the phase-out region of a targeted deduction for labour income.