DP12491 Do the rich pay their taxes early?

Author(s): Andreas M Fischer, Lucca Zachmann
Publication Date: December 2017
Keyword(s): demand for interest credit on early tax payment, early tax payment
JEL(s): D14, D30, E21, E41, H31
Programme Areas: Monetary Economics and Fluctuations
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12491

This paper examines the distributional effects of interest credits from early tax payments on average household income at the municipality level. The hypothesis that households from high-income municipalities pay their income taxes early is tested in a demand specification for interest credit for early tax payments. The empirical analysis considers regional data from 170 municipalities in the canton of Zurich from 2007 to 2013. The income elasticity of interest credit for early tax payments is estimated to be near unity for the top 5th percentile of average household income, whereas the same elasticity is below one-half for the lower 95th percentile and is statistically insignificant. The finding that high-income households pay their taxes early supports the view that the rich are not liquidity constrained. Early tax payments make the tax system more regressive for high-income households.