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

By Soren Blomquist, H̊akan Selin. Social Science Research Network, 2010

245 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics, Gender Studies

View Paper: https://www.semanticscholar.org/paper/93a9df71bdc82ff2a5817ca0867b4b78dfe164be

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Citations in the corpus

Estimating Taxable Income Responses using Danish Tax Reforms (2014, background): “…Saez, and Shephard 2010), Canada (Sillamaa and Veall 2001; Saez and Veall 2005), Norway (Aarbu and Thoresen 2001), Sweden (e.g. Hansson 2007; Blomquist and Selin 2010; Gelber 2012), and Poland (Kopczuk 2012).2 Reforms that strongly target the top of the income distribution provide…”
Marginal deadweight loss when the income tax is nonlinear (2019, background): “Other studies have found modest evidence of bunching, for elderly US workers who are both working and receiving social security benefits (Burtless and Moffitt (1984) and Friedberg (2000)), above the first eligibility threshold for the UK earned income tax credit (Blundell and Hoynes, 2004) or for th”
Bunching and Non-Bunching at Kink Points of the Swedish Tax Schedule (2012, unknown): “1.(3) Both values of the elasticity are below the elasticity estimates obtained in most empirical studies of the taxable income elasticity when tax reforms are used for identification.”
Toward obtaining a consistent estimate of the elasticity of taxable income using difference-in-differences (2014, methodology): “Blomquist and Selin (2010) use Swedish data to estimate a single decade-long difference from 1981 to 1991, and use 1986 income, that is income in the middle year, as an instrument.48 I repeat their proof here, using a two-year difference with first-order autocorrelation as an example.”
Do Consumers Respond to Marginal or Average Price? Evidence from Nonlinear Electricity Pricing (2014, unknown): “Blomquist and Selin (2010) and Saez, Slemrod, and Giertz (2012) suggest that consumption in a period midway between t0 and t can be used to address the mean reversion problem.”