Estimating Taxable Income Responses using Danish Tax Reforms
Henrik Jacobsen Kleven and
Esben Anton Schultz
Additional contact information
Henrik Jacobsen Kleven: Department of Economics, London School of Economics and Political Science
Esben Anton Schultz: Copenhagen Business School and CEBR
No 2011-02, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics
This paper presents evidence on taxable income responses using administrative data that link tax return information to detailed socioeconomic information for the entire Danish population over 25 years. The identifying variation is provided by a series of tax reforms that create large tax variation across individuals, income forms, and over time. It is argued that the unique tax variation and data in Denmark makes it possible to control for the biases from non-tax changes in the income distribution and mean reversion that plague much of the existing literature. Our main findings are the following: (i ) Labor income elasticities are modest overall, around 0.05 for wage earners and 0.10 for self-employed individuals. (ii ) Capital income elasticities are about 2-3 times larger than labor income elasticities. (iii ) Behavioral elasticities are much larger when estimated from large tax reform episodes than for small tax reform episodes, consistent with idea that responses to small tax changes are attenuated by optimization frictions such as adjustment costs and inattention. (iv) Crosstax effects between labor and capital income–for example due to income shifting–are in general small. (v) All of our findings are extremely robust to specification (such as pre-reform income controls), suggesting that we have controlled in a sufficiently rich way for non-tax factors impacting on taxable income.
JEL-codes: H24 H31 J22 (search for similar items in EconPapers)
Pages: 39 pages
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:kud:epruwp:11-02
Access Statistics for this paper
More papers in EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics Øster Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark. Contact information at EDIRC.
Bibliographic data for series maintained by Thomas Hoffmann ().