Taxes Today, Benefits Tomorrow

Thomas Le Barbanchon

American Economic Journal: Applied Economics, 2025, vol. 17, issue 4, 155-83

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 preserved 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.

JEL-codes: H24 H31 H71 J22 J65 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1257/app.20210550

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