Kinks Know More: Estimating Intensive and Participation Margin Responses Using Nonlinear Budget Sets

Stefan Pollinger ()
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Stefan Pollinger: ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique

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Abstract: This paper shows that kinks or notches in economic incentive schemes, such as taxes or subsidies, simultaneously identify agents' intensive and participation margin responses. The proposed estimator enables the evaluation of such schemes when existing kink- and discontinuity-based methods are inapplicable because both margins are present. The paper applies the estimator to evaluate kinks in the German subsidy for rooftop solar panels, finding sizeable responses at both margins. A second application to a notch in Denmark's preferential income tax for foreigners demonstrates the wider applicability of the methodology.

Keywords: Kinks; Notches; Bunching; Extensive Margin (search for similar items in EconPapers)
Date: 2026-08-31
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-05044604v2
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