A Data-Driven Procedure to Determine the Bunching Window - An Application to the Netherlands

Applying the bunching approach introduced by Saez (2010), we find clear evidence of bunching behaviour at the thresholds of the Dutch tax schedule with a precise estimated elasticity of 0.023 at the upper threshold. In line with the literature, we find much larger estimates for women and self-employed individuals. We also identify signicant bunching behaviour for individuals in paid employment which we attribute to tax deductions for couples. This paper adds to the literature on bunching by proposing the use of information criteria to determine the counterfactual model, and by the development of an intuitive, data-driven procedure to determine the bunching window.