Dan Luu • 2/18/2020

Suspicious discontinuities

This article analyzes 'suspicious discontinuities' in US policy, such as the ACA health insurance subsidy cliff, where a small income increase over a hard cutoff can cost thousands. It explains how these sharp thresholds disincentivize earning more and can even incentivize losing money, using the example of buying put options to realize a loss. The author argues for replacing these cliffs with slow phase-outs to create a less problematic system.

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#tax policy #subsidy cliff #income discontinuity