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Kinks Know More: Estimating Intensive and Participation Margin Responses Using Nonlinear Budget Sets

Author

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  • Stefan Pollinger

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper shows that kinks or discontinuities in economic incentive schemes, such as taxes or subsidies, simultaneously identify agents' intensive and participation margin responses. The proposed semi-nonparametric estimator enables the evaluation of such schemes when existing kink and discontinuity methods are inapplicable due to the presence of both margins. The paper applies the estimator to evaluate kinks in the German subsidy for rooftop solar panels, a cornerstone of global climate policies. Due to sizeable responses at both margins, nonlinearities in the programme only modestly increase its cost-effectiveness. The results highlight the importance of simultaneously estimating both margins for optimal policy design. A second application to notches in the preferential income tax for foreigners in Denmark demonstrates the wider applicability of the methodology.

Suggested Citation

  • Stefan Pollinger, 2025. "Kinks Know More: Estimating Intensive and Participation Margin Responses Using Nonlinear Budget Sets," SciencePo Working papers Main hal-05044604, HAL.
    • Handle: RePEc:hal:spmain:hal-05044604
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-05044604v1
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