responses. The first elasticity (supply side) is the sole real factor limiting optimal top tax rates. The optimal tax system … should be designed to minimize the second elasticity (avoidance) through tax enforcement and tax neutrality across income … forms, in which case the second elasticity becomes irrelevant. The optimal top tax rate increases with the third elasticity …

compensated elasticity of income with respect to tax rates. These models are used to perform simulations of bunching and calibrate … the key parameters (the behavioral elasticity and the extent to which taxpayers control their income) to the empirical … income distributions. Except for low income earners, the behavioral elasticity consistent with the empirical results is small …