bunchr (version 1.2.0)

elas_equalizer: Using elasticity to calculating distance between utility at tangency and at notch point

Description

Given an elasticity, a budget set, and the earnings of the marginal buncher, calculate the utility at notch point and at marginal buncher's earning, and return the absolute difference. Equating these two utilities helps find the elasticity of the marginal buncher. See equations (3) and (4) at Kelven and Waseem (2013)

Usage

elas_equalizer(elas, t1, t2, Tax, zstar, delta_zed, binw)

Arguments

elas

elasticity of earnings w.r.t. net-of-tax rate

t1

Tax rate before notch/kink

t2

Tax rate after notch/kink

Tax

Height of notch (zero for pure kink)

zstar

Place of notch/kink (critical earning point)

delta_zed

The notch size

binw

Bin width

Value

Absolute value of utility at $zstar+delta_zed$ minus utility at kink/notch point.

References

Kleven, H. and Waseem, Mazhar (2013) Using notches to uncover optimization frictions and structural elasticities: Theory and evidence from Pakistan, The Quarterly Journal of Economics 128(2)

Examples

elas_equalizer(0.2, 0.1, 0.2, 100, 1000, 200, 20)