Do couples bunch more? Evidence from partnered and single taxpayers

Abstract

AbstractRecent papers hypothesise that estimates of the elasticity of taxable income (ETI) for individuals may be underestimated where those individuals are taxed separately but are part of a couple. This paper investigates that issue by applying the ‘bunching at tax kinks’ approach to estimate separate ETIs for partnered and single individuals. It shows that there are opportunities for, and constraints on, bunching specific to partnered individuals. Using administrative taxable income data for the New Zealand taxpayer population over the period, 2000 to 2017, taxpayers are matched to their partners using population census data. Results strongly support the hypotheses that ETIs are larger for partnered, than for single, individuals, and where both partners are located in the same income tax bracket. Couples where one (and especially where two) partners are self-employed reveal particularly large elasticities.