When Do Wage Earners Bunch at Kink Points? Evidence from the Austrian Income Tax Reform 2005

In 2005 the reform of the Austrian income tax schedule introduced a salient first kink where marginal tax rates increase sharply. We observe substantial bunching in wage earnings since the introduction of the kink, increasing over time and mostly concentrated among female workers. Furthermore, we do find a weak pattern of decreased wage growth for tax payers around the bracket cut-off, indicating real labour supply responses. Finally, the amount of bunching differs substantially between industries, suggesting that bunching depends on both flexibility of working hours and the opportunity for collusive behaviour.