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Earnings responses to even higher taxes

Author

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  • Miao, Dingquan

    (Linnaeus University)

  • Selin, Håkan

    (IFAU - Institute for Evaluation of Labour Market and Education Policy)

  • Söderström, Martin

    (IFAU - Institute for Evaluation of Labour Market and Education Policy)

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 in an economy where taxes already are high. Using a simple and graphical cross sectional method, we estimate earnings elasticities in the range 0.13-0.16. We interpret the response using a simulation model in which people face uncertain marginal tax rates due to earnings dynamics. The tax response is surprisingly sharp given the earnings variability at the top of the earnings distribution.

Suggested Citation

  • Miao, Dingquan & Selin, Håkan & Söderström, Martin, 2022. "Earnings responses to even higher taxes," Working Paper Series 2022:12, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    • Handle: RePEc:hhs:ifauwp:2022_012
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    More about this item

    Keywords

    Earnings supply; Income taxation;

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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