We analyze the relationship between cognitive ability and bunching in the context of a large and salient kink point of the Swedish income tax schedule. Using population-wide register data from the Swedish military enlistment and administrative tax records, we find that high-ability individuals bunch more than low-ability individuals. This ability gradient is stronger for the self-employed, but is also present among wage earners. We also use high-school GPA and math grades to analyze gender differences, finding a stronger ability gradient among men.
Reference:
Bastani, Spencer and Daniel Waldenström (2020), "The Ability Gradient in Bunching". IFN Working Paper No. 1333. Stockholm: Research Institute of Industrial Economics (IFN).