Identification and Estimation of Labor Supply Elasticities from Kinked Budget Sets

Deniz Dutz, Morten Håvarstein, Magne Mogstad and Alexander Torgovitsky

No 35047, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the identification of labor supply elasticities from kinked budget sets in a model with income effects and individual heterogeneity in the elasticities. We provide point and partial identification results for compensated elasticities, uncompensated elasticities, and income effects. We use administrative data to apply our results to the Norwegian tax system, which exhibits a kink for the self-employed. There is clear bunching around the kink point, suggesting that the self-employed respond to the change in incentives created by the kink. We find that the bounds are often tight even under weak assumptions. Our results show that uncompensated elasticities are close to zero and compensated elasticities are sufficiently small to conclude that the excess burden of taxation is low.

JEL-codes: C14 C18 H21 H24 J22 (search for similar items in EconPapers)
Date: 2026-04
New Economics Papers: this item is included in nep-ecm, nep-lab, nep-lma and nep-pbe
Note: LS PE
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