How Do Taxpayers Respond to Tax Subsidy for Long-term Savings? Evidence from Thailand’s Tax Return Data
This paper uses a panel of personal income tax return data for the population of Thai tax filers to examine how individuals respond to tax subsidy for long-term savings. We utilize the 2013 tax reform that lowered the price subsidy for long-term savings in order to obtain causal identification. Our difference-in-difference analysis illustrates that there is a considerable heterogeneity in the individual responses to the subsidy cut—with middle-income taxpayers responding much greater than their high-income counterparts. Among the middle-income group, we also find that the subsidy reduction has larger effects on decisions of smaller contributors. Finally, we provide some suggestive evidence that taxpayers who are younger, less financially sophisticated and less financially disciplined exhibit stronger responses to the subsidy cut. Our findings shed light on the heterogeneity of individual responses which are crucial for policymakers who consider an incremental change in the existing tax incentive scheme.