Do Very High Tax Rates Induce Bunching? Implications for the Design of Income Contingent Loan Schemes*

Australian Taxation Office (ATO) and his colleagues for supplying us with the microdata used in this analysis. Andrew Norton, John Quiggin, Maria Racionero, Chris Ryan, Susanne Schmidt, seminar participants at the ATO, Macquarie University and the University of Queensland, two anonymous referees and editor Paul Miller provided valuable comments and suggestions on earlier drafts. None of the above are responsible for the analysis or the conclusions drawn. JEL classifications: H31, H52 Correspondence: Andrew Leigh, Economics Program, Research School of Social Sciences, Australian National University, Canberra, ACT 0200, Australia. Email: andrew. 1 A system to collect child support payments from noncustodial parents through the taxation system was introduced in Australia in 1987. Countries that use the tax system to recover higher education student loans include Australia (1989), New Zealand (1991), Ethiopia (2002), Hungary (2003), Thailand (2006) and the UK (introduced in 1997 for income support and expanded considerably in 2005 to also cover tuition). The governments of Colombia, Malaysia, Israel and other countries are seriously considering using their taxation systems to collect student loans in the near future. THE ECONOMIC RECORD, VOL. 85, NO. 270, SEPTEMBER, 2009, 276–289