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Earnings Responses to Even Higher Taxes

Year: 2024

Type: article

Abstract: We exploit a recent Swedish tax reform, implying higher marginal tax rates for the top 5% of the earnings distribution, to learn about earnings responses to higher taxes. Using a simple and graphical cross-sectional method, we estimate an earnings elasticity of 0.16, evaluated four years after the reform. Our analysis indicates that the response is driven by adjustments in wage rates, and not by changes to hours, job switches or income shifting. We interpret the magnitude and preciseness of the response using a realistically calibrated simulation model in which people face uncertain marginal tax rates due to earnings dynamics.

Source: The Economic Journal

DOI: 10.1093/ej/ueae092

Authors: Dingquan Miao, Håkan Selin, Martin Söderström

Institutions: South China Normal University, Linnaeus University, Uppsala University, Institute for Evaluation of Labour Market and Education Policy

Language: English

Topic: Labor market dynamics and wage inequality

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: hybrid

Estimated APC paid: $4,499