DP14599 The Ability Gradient in Bunching

Author(s): Spencer Bastani, Daniel Waldenström
Publication Date: April 2020
Date Revised: April 2020
Keyword(s): ability, bunching, Complexity, optimal taxation, skills
JEL(s): H21, H24, J22, J24
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14599

We analyze the relationship between cognitive ability and bunching in the context of a large and salient kink point of the Swedish income tax schedule. Using population-wide register data from the Swedish military enlistment and administrative tax records, we find that high-ability individuals bunch more than low-ability individuals. This ability gradient is stronger for the self-employed, but is also present among wage earners. We also use high-school GPA and math grades to analyze gender differences, finding a stronger ability gradient among men.