Better Bunching, Nicer Notching

66 Pages Posted: 22 Apr 2021

See all articles by Marinho Bertanha

Marinho Bertanha

University of Notre Dame - Department of Economics

Andrew H. McCallum

Board of Governors of the Federal Reserve System

Nathan Seegert

University of Utah - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: January, 2021

Abstract

We study the bunching identification strategy for an elasticity parameter that summarizes agents' response to changes in slope (kink) or intercept (notch) of a schedule of incentives. A notch identifies the elasticity but a kink does not, when the distribution of agents is fully flexible. We propose new non-parametric and semi-parametric identification assumptions on the distribution of agents that are weaker than assumptions currently made in the literature. We revisit the original empirical application of the bunching estimator and find that our weaker identification assumptions result in meaningfully different estimates. We provide the Stata package bunching to implement our procedures.

JEL Classification: C14, H24, J20

Suggested Citation

Bertanha, Marinho and McCallum, Andrew H. and Seegert, Nathan, Better Bunching, Nicer Notching (January, 2021). Available at SSRN: https://ssrn.com/abstract=3881613 or http://dx.doi.org/10.17016/FEDS.2021.002

Marinho Bertanha (Contact Author)

University of Notre Dame - Department of Economics ( email )

Notre Dame, IN 46556
United States

Andrew H. McCallum

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

HOME PAGE: http://www.andrewhmccallum.com

Nathan Seegert

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States

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