The Ability Gradient in Tax responsiveness

How does people’s ability influence their taxpaying behavior? This column links administrative tax and military enlistment registers in Sweden to measure how cognitive ability matters for income tax responsiveness. The authors find that individuals in the top decile of the ability distribution react twice as strong to a large and salient kink point in the tax code than the average individual, and three times as strong as individuals in the bottom ability decile. This ability gradient reflects both income shifting among high-ability businesses owners and labour supply responses among high-ability wage earners.