bunching evidence from Hungary

More documents

Recommendations

Info

MAGYAR NEMZETI BANK Figure 2 Minimum revenue tax schedule when the sum of tax base modifying items () < 0 Tax amount 0 .01 .02 .03 .04 .05 .06 .07 2% Y τ Δ τ (Y - C) τ (Y - C + Δ) τ 0 .02 .04 .06 [ Y - C ] / Y = 2% Profit ratio rates. Aer the introducon of the minimum tax scheme a kink point is introduced in the tax liability schedule. With the new tax regime firms to le of the cutoff face an incenve to reopmase their reporng and to increase their reported profit rate ll the cutoff either via reducing over-reporng cost items or producon, while firms above the cutoff are not affected. Firms in some interval [ ∗ ∗ , ∗ ] – where ∗ is the 2 percent cutoff – will find it more profitable to increase their reported profit ll the cutoff and create an excess mass in the distribuon. The marginal buncher firm is originally located at the ∗ ∗ profit rate, and all firms originally located between the marginal buncher and the 2 percent cutoff move to the kink point. Firms located below the marginal buncher will also increase their reported profit rate aer the reform and fill up the hole in the interval [ ∗ ∗ , ∗ ]. Assuming two hypothecal populaons of firms facing the same tax reform, the further the marginal buncher is from the cutoff, the larger the firms’ response to the reform. How far from the le of the cutoff the marginal buncher is coming from can be linked to the amount of excess bunching based on the formula: ∗ B h 0 ()d ≃ h 0 ̄ () ∗ , (7) ∗ ∗ where B is total bunching mass that is esmated based on the empirical distribuon, and h 0 () is the counterfactual density on the interval [ ∗ ∗ , ∗ ]. The marginal buncher (b) can be backed out b B/ h 0 ̄ (). The counterfactual distribuon (i.e. the distribuon that would have been without the kink or the notch) is esmated by fing a polynomial on the actual empirical distribuon where the bunching interval is excluded, then predicted fied values are calculated for the excluded range. Finally, the excess mass is the difference between the actual and counterfactual distribuon. A drawback of this counterfactual esmaon strategy is that it does not take into consideraon extensive margin responses. To overcome this laer problem a novel characterisc of my esmaon strategy is that I compare the empirical distribuon directly to the actual pre-reform distribuon, and not to a hypothecal counterfactual. I calculate bootstrapped standard errors for the point esmate of b by taking samples (with replacement) of the distribuon a large number of mes (N=1000), esmang the point esmates corresponding to these bootstrap samples, and then calculang the sample standard deviaon of the sampling distribuon of b . The methodology is similar in case of the tax schedule with a notch point. The marginal bunching firm is originally located at the ∗ profit rate, where ∗ is the 2 percent cutoff, and all firms between the marginal buncher and the cutoff move to the notch point. In case of the notched tax schedule firms face an addional incenve to bunch above the cutoff. The 10 MNB WORKING PAPERS 3 • 2016
MINIMUM TAX SCHEME difference between the kink and the notch point is that the laer creates a dominated region. That is why though those firms located below the marginal buncher will also increase their reported profit rate, but will not fill up the hole enrely due to the dominated region. The excess mass is the difference between the empirical distribuon and the actual pre-reform distribuon in the range above the cutoff threshold. (See Saez (2010) and Kleven and Waseem (2013) for the theory on tax schedule kink and notch point created bunching responses). MNB WORKING PAPERS 3 • 2016 11
Page 1: Pálma Mosberger Accounting versus
Page 4 and 5: The views expressed are those of th
Page 6 and 7: Abstract Exisng evidence indicates
Page 8 and 9: MAGYAR NEMZETI BANK that put bounds
Page 10 and 11: MAGYAR NEMZETI BANK where y is the
Page 14 and 15: 3 Responses to tax incenves In this
Page 16 and 17: MAGYAR NEMZETI BANK bunch right of
Page 18 and 19: MAGYAR NEMZETI BANK Table 1 Control
Page 20 and 21: MAGYAR NEMZETI BANK Table 2 Diff-in
Page 22 and 23: MAGYAR NEMZETI BANK the reported ma
Page 24 and 25: MAGYAR NEMZETI BANK Table 4 Changes
Page 26 and 27: MAGYAR NEMZETI BANK enterprises; an
Page 28 and 29: References A, M. D. L-R (2013),
Page 30 and 31: MAGYAR NEMZETI BANK Table 5 Corpora
Page 32 and 33: MAGYAR NEMZETI BANK Figure 11 Firms
Page 34 and 35: MAGYAR NEMZETI BANK Figure 15 All f
Page 36 and 37: MAGYAR NEMZETI BANK Table 6 Control
Page 38 and 39: MAGYAR NEMZETI BANK Table 9 Robustn
Page 40 and 41: MAGYAR NEMZETI BANK Table 13 Robust
Page 42 and 43: MAGYAR NEMZETI BANK Table 17 Contro
Page 45: MNB Working Papers 3 Accounng versu

bunching evidence from Hungary

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?