American Economic Journal:
Applied Economics
ISSN 1945-7782 (Print) | ISSN 1945-7790 (Online)
Taxes Today, Benefits Tomorrow
American Economic Journal: Applied Economics
(pp. 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.Citation
Le Barbanchon, Thomas. 2025. "Taxes Today, Benefits Tomorrow." American Economic Journal: Applied Economics 17 (4): 155–83. DOI: 10.1257/app.20210550Additional Materials
JEL Classification
- H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
- H31 Fiscal Policies and Behavior of Economic Agents: Household
- H71 State and Local Taxation, Subsidies, and Revenue
- J22 Time Allocation and Labor Supply
- J65 Unemployment Insurance; Severance Pay; Plant Closings