Behavioral Cross-Influence of a Shadow Tax Bracket : Evidence from Bunching Where Income Tax Liabilities Start
In a complex tax environment, confused taxpayers may display earnings responses at irrelevant income levels. This behavioral cross-influence arises as a new behavioral elasticity in the optimal income tax formula with behavioral agents developed by Farhi and Gabaix (2020). Relying on the universe of French income tax returns from 2008 to 2014, this paper estimates the behavioral cross-influence of a shadow tax bracket located just below the Tax Collection Threshold (TCT) where tax liabilities start. Optimizing tax filers who neglect a Tax Collection Minimum perceive this shadow tax bracket and end up bunching at its lower bound, an irrelevant Taxation Threshold (TT). The behavioral cross-influence is identified from earnings responses to yearly variations in the perceived marginal tax rate of this shadow bracket among tax filers who were initially correctly optimizing their taxable income. This dynamic adjustment reveals that tax filers assign positive probabilities to both the effective tax schedule and the shadow bracket, rather than focusing exclusively on one of them. This investigation provides a few more insights on tax filers' mental representations of the income tax. First, instead of computing the tax schedule, they appear to directly search for external information about relevant incentives. Second, tax misperceptions are moderately heterogeneous. Third, online tax filers assign a higher probability to the effective tax schedule than filers in hard copy. Finally, ignoring earnings responses from behavioral agents would lead to a strong underestimation of structural elasticities
Year of publication: |
[2022]
|
---|---|
Authors: | Lardeux, Raphael |
Publisher: |
[S.l.] : SSRN |
Subject: | Einkommensteuer | Income tax |
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