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Taxes Today, Benefits Tomorrow

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  • Le Barbanchon, Thomas

    (Bocconi University)

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.

Suggested Citation

  • Le Barbanchon, Thomas, 2025. "Taxes Today, Benefits Tomorrow," IZA Discussion Papers 17600, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp17600
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    References listed on IDEAS

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    More about this item

    Keywords

    tax-benefit linkage; bunching; unemployment insurance;
    All these keywords.

    JEL classification:

    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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