STICERD Work in Progress Seminars
Information Frictions and Earnings Responses to Taxes: Evidence from Firm and Individual Bunching in Pakistan
Michael Best (LSE, STICERD)
Friday 01 November 2013 13:00 - 14:00
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About this event
This paper provides evidence on the relevance of information frictions for firm and worker responses to individual income taxation in Pakistan. I document 'firm bunching' of salaries around kinks in the tax schedule originating from equilibrium responses by firms to worker-level incentives. I estimate that the causal effect of firm bunching is to increase bunching responses by workers. This finding is inconsistent with fixed adjustment costs and is most consistent with firm responses reducing information frictions for workers - 'learning by bunching'.