Do Couples Bunch More? Evidence from Partnered and Single Taxpayers in New Zealand

Abstract

Recent papers hypothesise that estimates of the elasticity of taxable income (ETI) for individuals may be biased where those individuals are taxed separately but are part of a couple family. 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, individual taxpayers are matched to their partners using population census data. Results provide strong support for the hypotheses that ETIs are larger for individuals in couples than for single individuals, and for couples where both partners are located in the same income tax bracket. Self-employed individuals in couple families reveal especially large ETIs.