Finance and Economics Discussion Series (FEDS)
Bunching estimation of elasticities using Stata
Marinho Bertanha, Andrew H. McCallum, Alexis Payne, and Nathan Seegert
A continuous distribution of agents that face a piecewise-linear schedule of incentives results in a distribution of responses with mass points located where the slope (kink) or intercept (notch) of the schedule changes. Bunching methods use these mass points to estimate an elasticity parameter, which summarizes agents' responses to incentives. This article introduces the command bunching, which implements new non-parametric and semi-parametric identification methods for estimating elasticities developed by Bertanha et al. (2021). These methods rely on weaker assumptions than currently made in the literature and result in meaningfully different estimates of the elasticity in various contexts.
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