Labor Supply Responsiveness to Tax Reforms

Hans Schytte Sigaard ()
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Hans Schytte Sigaard: Department of Economics and Business Economics, Aarhus University, Postal: Fuglesangs Alle 4, DK-8210 Aarhus V, Denmark

Economics Working Papers from Department of Economics and Business Economics, Aarhus University

Abstract: Labor supply responses constitute real responses to taxation and are central for policy analysis. This paper estimates the elasticity of labor supply at the intensive margin by applying conventional estimation strategies from the elasticity of taxable income (ETI) literature to administrative register data on performed hours of work. The elasticity is estimated to be 0.08, significant, and can be attributed to individuals changing main and secondary employment, a general increase in contract hours, and a reduction in paid absence. By also estimating ETI, which captures all responses to taxation, I show that a large part of total responses can be attributed to individuals adjusting work hours, capturing inherent labor responses, and I thereby provide a link between the labor and public finance literatures. These findings suggest that contextual factors such as labor market fluidity and flexibility are important to facilitate real responses to taxation and that labor supply responses are core underlying drivers of total responses to taxation.

Keywords: Elasticity of labor supply; marginal tax rates; tax reforms; behavioral responses; public economics (search for similar items in EconPapers)
JEL-codes: H21 H24 H30 J22 J24 J62 (search for similar items in EconPapers)
Pages: 22
Date: 2022-08-31
New Economics Papers: this item is included in nep-lma, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:aah:aarhec:2022-04

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