Substitution and Income Effects of Labor Income Taxation

Michael Graber, Morten HÃ¥varstein, Magne Mogstad, Gaute Torsvik and Ola L. Vestad
Additional contact information
Michael Graber: Statistics Norway
Morten HÃ¥varstein: University of Chicago - Department of Economics; University of Oslo
Magne Mogstad: University of Chicago - Department of Economics; Statistics Norway; NBER
Gaute Torsvik: University of Oslo
Ola L. Vestad: Statistics Norway

No 2026-45, Working Papers from Becker Friedman Institute for Research In Economics

Abstract: The elasticity of taxable income (ETI) parameter is a key quantity in empirical analysis of tax policy and labor supply. We examine when a commonly applied class of ETI estimands can be used to learn about individuals’ ETI parameters and their (un)compensated elasticities of labor supply. We provide conditions under which these estimands admit a causal interpretation, and apply the framework to a Norwegian tax reform reducing marginal tax rates. Estimated ETI parameters rise with income, implying greater responsiveness among high-income individuals. We further show how labor supply elasticities can be bounded or identified using these estimands and additional variation from lottery winnings. The results imply meaningful excess burden from taxation and suggest that reducing top-income tax rates could increase revenue, with implications for intertemporal substitution and Frisch elasticities across the income distribution.

JEL-codes: C20 D15 H20 J22 (search for similar items in EconPapers)
Date: 2026
References: Add references at CitEc
Citations:

Downloads: (external link)
https://repec.bfi.uchicago.edu/RePEc/pdfs/BFI_WP_2026-45.pdf (application/pdf)

Related works:
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: https://EconPapers.repec.org/RePEc:bfi:wpaper:2026-45

Access Statistics for this paper

More papers in Working Papers from Becker Friedman Institute for Research In Economics Contact information at EDIRC.
Bibliographic data for series maintained by Toni Shears ( this e-mail address is bad, please contact ).