Bunching in the Norwegian wealth tax schedule

In this thesis, I explain the concept of bunching around kink points in the tax schedule, and investigate whether such bunching may be occurring at the kink point created by the Norwegian wealth tax. I conclude that there seems to be no evidence of such bunching, after examining the distribution of taxpayers around the kink point in several ways. Theoretically, bunching at kink points should occur when there is an increase in the marginal tax rate, as the change in marginal payoff will lead to an uneven distribution of taxpayers around the kink point. This could also be further affected by different assets being treated differently for tax purposes. I present such a model, explaining the various mechanisms that affect the amount of bunching, and explain how it can occur. There have been other studies of bunching, with some that found evidence of bunching and some that did not. Very few such studies have examined wealth taxation, with the exception of a recent Swedish study (Seim 2012) that found evidence of bunching around a kink point created by the Swedish wealth tax. No such studies have been previously done for Norway, however. Examining tax data for the year 2012, I observe that the distribution of taxpayers appears to have no trace of bunching, with various methods for observing potential bunching leading to the same conclusion. Furthermore, a look at the composition of wealth gave no indication that taxpayers responded to the wealth tax at all around the kink. It is particularly difficult to point to any strong reason for the different findings, given the similarity between Norway and Sweden in most aspects related to taxation. There are some methodological differences however, that are worth taking into account