How Do Firms Respond to Kinks in the VAT System

• In Event: Behavioral Firms and the Tax System

Abstract

I study Finnish value-added tax system to estimate how (small) firms respond to kinks in their marginal tax rates. During the data period, the exemption threshold has moved several times, providing multiple kink points to study. In addition to traditional bunching analysis, I utilize the panel data structure to employ dynamic bunching estimation, and present a novel estimation for compliance costs. The paper also studies extensive margin effects and firm heterogeneity.

Author

• Lukas Worku, lukas.worku@tuni.fi