taxation. Building on the conceptual framework of Chetty (2009), we show that this assertion does no longer hold for tax … systems with deduction possibilities if (i) deductions generate externalities and (ii) deductions are responsive to tax rate … changes. While the first condition should arguably hold for almost any imaginable tax deduction, we provide a thorough …

responses for the Earned Income Tax Credit (EITC) in the US. We exploit that US states can set top-up rates, which means that …, at a given point in time, workers with the same income receive different tax refunds in different states. Using event …-employed tax filers at the first kink point of the tax schedule. While we document a strong relationship up until the Great …