Taxes Today, Benefits Tomorrow

Thomas Le Barbanchon ()
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Thomas Le Barbanchon: Bocconi University

No 17600, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper tests whether partially unemployed workers value future preserved benefits when they bunch at the kink of the unemployment insurance benefit-withdrawal schedule. I extend the bunching formula of Saez (2010) to a dynamic setting that accounts for the value of future benefits tied to taxation. This yields new tests of tax-benefit linkage based on bunching heterogeneity. I verify in quasi-experiments that UI extension programs that decrease the value of future benefits lead to more bunching and to lower labor supply. Last, a quantification exercise of the dynamic bunching formula provides extra support for a strong tax-benefit linkage.

Keywords: tax-benefit linkage; bunching; unemployment insurance (search for similar items in EconPapers)
JEL-codes: H24 H31 J65 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2025-01
New Economics Papers: this item is included in nep-lab, nep-pbe and nep-pub
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