Diffuse Bunching with Frictions
Author | : Santosh Anagol |
Publisher | : |
Total Pages | : 0 |
Release | : 2022 |
ISBN-10 | : OCLC:1349245265 |
ISBN-13 | : |
Rating | : 4/5 ( Downloads) |
Download or read book Diffuse Bunching with Frictions written by Santosh Anagol and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We incorporate a model of frictions into the bunching-based elasticity estimator to rationalize diffuse bunching around kinks and mass above notches in empirical distributions. Model agents draw a sparse set of opportunities from a Poisson process, approximating a broad class of frictions including search costs, inattention, and lumpy adjustment; the predicted density depends on the standard structural elasticity and a money-metric “lumpiness parameter.” We estimate the model using administrative tax data on South African small-businesses, recovering moderate elasticities of taxable income between 0.2 and 0.3 at higher incomes, and larger elasticities at low incomes. Firms appear to treat the bottom kink as a notch, and firms with paid tax practitioners exhibit sharper bunching, driven primarily by lower frictions rather than a higher elasticity.