Tax Reforms and Intertemporal Shifting of Wage Income: Evidence from Danish Monthly Payroll Records
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Abstract
This paper uses monthly payroll records for all Danish employees to identify widespread intertemporal shifting of labor income in response to a tax reform that significantly reduced the marginal tax rates for one-fourth of all employees. When ignoring shifting, the estimate of the overall elasticity of taxable income equals 0.1, and the elasticity is increasing with earnings. When removing the shifting component, the elasticity is close to zero at all earnings levels. The evidence also indicates that tax salience, liquidity constraints and firm willingness to cooperate in shifting are important factors in explaining shifting behavior.Citation
Kreiner, Claus Thustrup, Søren Leth-Petersen, and Peer Ebbesen Skov. 2016. "Tax Reforms and Intertemporal Shifting of Wage Income: Evidence from Danish Monthly Payroll Records." American Economic Journal: Economic Policy, 8 (3): 233-57. DOI: 10.1257/pol.20140233Additional Materials
JEL Classification
- H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
- H31 Fiscal Policies and Behavior of Economic Agents: Household
- J22 Time Allocation and Labor Supply
- J31 Wage Level and Structure; Wage Differentials
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