Bunching

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Abstract

Recent years have seen a surge of applied work using bunching approaches, a development that is closely linked to the increased availability of administrative data. These approaches exploit the incentives for bunching created by discontinuities in the slope of choice sets (kinks) or in the level of choice sets (notches) to study the behavior of individuals and firms. Although the bunching approach was originally developed in the context of taxation, it is beginning to find applications in many other areas, such as social security, social insurance, welfare programs, education, regulation, private sector prices, and reference-dependent preferences. This review provides a guide to bunching estimation, discusses its strengths and weaknesses, surveys a range of applications across fields, and considers reasons for the ubiquity of kinks and notches.

Original languageEnglish (US)
Pages (from-to)435-464
Number of pages30
JournalAnnual Review of Economics
Volume8
DOIs
StatePublished - Oct 31 2016
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Keywords

  • Bunching estimation
  • Kinks
  • Notches
  • Optimization frictions
  • Reference dependence
  • Structural parameters

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