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Recent Publications

Paper Link Han, H., Julien, B., Petursdottir, A., & Wang, L. : Equilibrium using credit or money with indivisible goods, Journal of Economic Theory, November 2016.

Paper Link Fuleky, P., and Ventura, L.: Mean Lag in General Error Correction Models, Economics Letters, June 2016

Paper Link Kirwan, B. E., & Roberts, M. J. : Who Really Benefits from Agricultural Subsidies? American Journal of Agricultural Economics, June 2016.


Date: Friday, December 02, 2016, at 3 pm.
Room: Saunders 515
Title: Using Kinked Budget Sets to Estimate Extensive Margin Responses: Evidence from the Earnings Test
Speaker: Damon Jones
Institution: University of Chicago

We develop a methodology for estimating the impact of incentives to be employed on the employment rate, and we use it to estimate the impact of the Social Security Old Age and Survivors’ Insurance (OASI) Annual Earnings Test (AET) on the employment rate. The AET reduces OASI claimants’ current OASI benefits as a proportion of earnings, once a claimant earns in excess of an exempt amount. Using a Regression Kink Design and administrative data from the Social Security Administration, we document clear visual and statistical evidence that as a function of potential earnings, the probability of employment increases discontinuously more slowly above the exempt amount than below it, paralleling the discontinuous change in the benefit reduction rate. We develop conditions under which we can use this change in slope to estimate the elasticity of the employment rate with respect to the effective net-of-tax rate. Under this estimation strategy, our preferred point estimate of the elasticity of the employment rate with respect to the average net-of-tax rate is at least 0.59. This suggests that the existence of the AET leads to a substantially lower employment rate among affected older workers.