Blomquist, Sören () (Uppsala Center for Fiscal Studies) Selin, Håkan (Uppsala Center for Fiscal Studies)
Abstract
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.
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Length: 31 pages Date of creation: 19 Nov 2008 Date of revision: Handle: RePEc:hhs:uufswp:2009_001
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Find related papers by 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 J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
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