Digging Into the channels of bunching evidence from the Uruguayan income tax Marcelo Bergolo, Gabriel Burdin, Mauricio De Rosa, Matias Giaccobasso, Martin Leites
Contributor(s): Bérgolo, Marcelo
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Material type: 
ArticleSubject(s): RENTA | IMPUESTOS | CUMPLIMIENTO FISCAL | COSTES DE CUMPLIMIENTO | URUGUAY | MODELOS ECONOMETRICOS
In:
The Economic Journal v. 131, n. 639, October 2021, p. 2726-2762 Summary: Based on detailed administrative tax records, we implement a bunching design to explore how individual taxpayers respond to personal income taxation in Uruguay. We estimate a very modest elasticity of taxable income at the first kink point (0.06) driven by a combination of gross labour income and deduction responses. Taxpayers use personal deductions more intensively close to the kink point and underreport income to the tax authority. Our results suggest that the efficiency costs of taxation are not necessarily large in contexts characterised by limited deduction opportunities. Policy efforts should be directed at broadening the tax base and improving enforcement capacity.
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Based on detailed administrative tax records, we implement a bunching design to explore how individual taxpayers respond to personal income taxation in Uruguay. We estimate a very modest elasticity of taxable income at the first kink point (0.06) driven by a combination of gross labour income and deduction responses. Taxpayers use personal deductions more intensively close to the kink point and underreport income to the tax authority. Our results suggest that the efficiency costs of taxation are not necessarily large in contexts characterised by limited deduction opportunities. Policy efforts should be directed at broadening the tax base and improving enforcement capacity.
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