A good approximation is provided by comparing the tax paid by firms at the top of the window to the tax paid by firms at the bottom of the window (see Table A.1). [...] Conceptually, this excess mass is the number of firms between the marginal non-buncher (the firm who would have paid exactly $1.5m in payroll even when the tax rate did not change) and the marginal buncher (the firm with the highest payroll who has the incentive to reduce their income to $1.5m given the tax rate change). [...] The elasticity of firm payrolls with respect to the marginal payroll tax rate can be estimated by investigating the response of the marginal buncher to the marginal tax rate change. [...] The elasticity estimate is calculated as the bunching mass as a proportion of the counterfactual mass, divided by the size of the marginal tax rate kink as a proportion of the net-of-tax rate.6 The technical details of our bunching analysis are as follows: • Following Chetty et al. [...] • We specify the bin size as $40,000 and exclude 3 bins to the left of the threshold when estimating the counterfactual, as we suspect bunching to occur in this region of the distribution, based on visual inspection of the raw data.
- Pages
- 11
- Published in
- Australia
