We show how tax kinks can be used to estimate the marginal propensity to consume (MPC). Tax kinks create discrete changes in the relationship between taxable income and disposable income, which - under a set of testable assumptions - enables causal identification of the spending response to...

We show how tax kinks can be used to estimate the marginal propensity to consume (MPC). Tax kinks create discrete changes in the relationship between taxable income and disposable income, which – under a set of testable assumptions – enables causal identification of the spending response to...

We examine individuals’ responsiveness to marginal tax rates using the universe of Australian taxpayer records from 2000 to 2018. Unlike studies from other countries, we find sharp bunching at all kink points. The estimated Elasticities of Taxable Income (ETI) range from effectively zero for...