Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/263703 
Year of Publication: 
2022
Series/Report no.: 
CESifo Working Paper No. 9773
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We study adjustment costs in behavioral responses to income taxes, exploiting tax reforms that create and subsequently eliminate income tax kinks in Cyprus. Reduced-form evidence reveals substantial adjustment frictions attenuating bunching and de-bunching responses. Combining the empirical bunching moments with a structural model of frictional earnings supply, adjustment costs are estimated between EUR 93 and EUR 238 for wage earners. Moreover, we uncover important asymmetries in adjustment frictions, where bunching at a kink is costlier than de-bunching away from the kink. Finally, we find that self-employed individuals face considerably lower adjustment costs than wage earners.
Subjects: 
income taxation
taxable income responses
bunching
adjustment frictions
JEL: 
H24
J22
Document Type: 
Working Paper
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