Hourly Wage Rate and Taxable Labor Income Responsiveness to Changes in Marginal Tax Rates

Sören Blomquist () and Håkan Selin ()
Additional contact information
Sören Blomquist: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
Håkan Selin: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

No 2008:16, Working Paper Series from Uppsala University, Department of Economics

Abstract: Recently, a voluminous literature estimating the taxable income elasticity has emerged as an important field in empirical public economics. However, to a large extent it is still unknown how the hourly wage rate, an important component of taxable income, reacts to changes in marginal tax rates. In this study we use a rich panel data set and a sequence of tax reforms that took place in Sweden during the 1980’s to estimate the elasticity of the hourly wage rate with respect to the net-of-tax rate. While carefully accounting for the endogeneity of marginal tax rates as well as other factors that determine wage rates we do find a statistically significant response both among married men and married women. The hourly wage rate elasticity with respect to the net-of-tax rate is estimated to 0.14-0.16 for males and 0.41-0.57 for females. In addition, we obtain uncompensated taxable labor income elasticities of around 0.21 for men and 0.96-1.44 for women. In contrast to earlier studies, we also find significant income effects for males. Accordingly, for males the compensated taxable labor income elasticity is about 4 percentage points higher than the uncompensated one.

Keywords: Income taxation; hourly wage rates; work effort; taxable income (search for similar items in EconPapers)
JEL-codes: H24 J22 J31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lab and nep-pub
Date: 2008-11-19
View list of references View citations in EconPapers

Downloads: (external link)
http://www.nek.uu.se/Pdf/wp2008_16.pdf (application/pdf)

Related works:
Working Paper: Hourly Wage Rate and Taxable Labor Income Responsiveness to Changes in Marginal Tax Rates (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:hhs:uunewp:2008_016

Access Statistics for this paper

More papers in Working Paper Series from Uppsala University, Department of Economics
Address: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Contact information at EDIRC.
Series data maintained by Katarina Grönvall ().