Journal of Public Economics 214, article 104727, October 2022.
We study adjustment costs in responses to income taxes, using administrative data from Cyprus and exploiting tax reforms that create and subsequently eliminate income tax kinks. Reduced-form evidence reveals substantial adjustment frictions attenuating bunching and de-bunching responses. Combining the empirical bunching moments with a structural model of frictional earnings supply, adjustment costs are estimated between EUR 93 and EUR 238 for wage earners. Moreover, we uncover important asymmetries in adjustment frictions, where bunching at a kink is costlier than de-bunching away from the kink. Finally, we find that self-employed individuals face considerably lower adjustment costs than wage earners.
Econometrica 90(2), pp. 507-550, March 2022 (lead article).
We study firm responses to a large-scale change in apprenticeship regulation in Colombia. The reform requires firms to train, setting apprentice quotas that vary discontinuously in firm size. We document strong heterogeneity in responses across sectors, where firms in sectors with high skill requirements tend to avoid training apprentices, while firms in low-skill sectors seek apprentices. Guided by these reduced-form findings, we structurally estimate firms' training costs. Especially in high-skill sectors, many firms face large training costs, limiting their willingness to train apprentices. Yet, we find substantial overall benefits of expanding apprenticeship training, in particular when the supply of trained workers increases in general equilibrium. Finally, we show that counterfactual policies that take into account heterogeneity across sectors can deliver similar benefits from training while inducing less distortions in the firm size distribution and in the allocation of resources across sectors.
American Economic Review 111(4), pp. 1126-65, April 2021.
This paper studies the large concentration of retirement behavior around statutory retirement ages, a puzzling stylized fact. To investigate this fact, I estimate bunching responses to 644 different pension benefit discontinuities, using administrative data on the universe of German retirees. Financial incentives alone cannot explain retirement patterns, but there is a large direct effect of statutory retirement ages. Further evidence suggests the framing of statutory ages as reference points for retirement as a plausible explanation. Simulations based on estimated reference point effects highlight that shifting statutory ages via pension reforms can be an effective policy to increase actual retirement ages.
Public disability insurance (DI) programs in many countries face pressure to reduce their generosity in order to remain sustainable. In this paper, we investigate the welfare effects of giving a larger role to private insurance markets in the face of public DI cuts. Exploiting a unique reform that abolished one part of the German public DI system for younger workers, we find that despite significant crowding-in effects, overall private DI take-up remains modest. We do not find any evidence of adverse selection on unpriced risk. On the contrary, private DI tends to be concentrated among high-income, high-education and low-risk individuals. Using a revealed preferences approach, we estimate individual DI valuations, a key input for welfare calculations. We find that observed willingness-to-pay of many individuals is low, such that providing DI partly via a private insurance market with choice improves welfare. However, we show that distributional concerns as well as individual risk misperceptions can provide grounds for justifying a full public DI mandate.
Empirical evidence suggests that individuals often evaluate options relative to a reference point, especially seeking to avoid losses. In this paper, we provide the first welfare analysis under reference-dependent preferences. We decompose the welfare impact of changes in reference points and prices into direct and behavioral effects, and describe how these effects depend on whether reference dependence reflects a bias or a normative preference. In a simple model of loss aversion grounded in common empirical findings, we find that lowering reference points robustly improves welfare, while the welfare effect of a price change depends critically on normative judgments. We also derive sufficient statistics characterizations of the welfare effects of changing reference points and prices. We illustrate these theoretical findings with an empirical application to reference dependence exhibited in German workers' retirement decisions. Both simulation and sufficient statistics results suggest positive welfare effects of increasing the Normal Retirement Age, but ambiguous effects of financial incentives to postpone retirement. Finally, we study how adopting alternative models of reference dependent preferences modifies key welfare effects.
WORK IN PROGRESS
MEDIA, POLICY AND OTHER PUBLICATIONS
Der flexible Renteneintritt ist ein zweischneidiges Schwert: Kommentar (mit Johannes Geyer und Peter Haan)
DIW Wochenbericht Nr. 20/2022, S. 296.
Die Sehnsucht nach der frühen Rente (mit Johannes Geyer und Peter Haan)
Frankfurter Allgemeine Zeitung, 25.04.2022
Zeitschrift Deutsche Rentenversicherung 75(3), S. 358-379, September 2020