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Intertemporal Labor Supply Substitution? Evidence from the Swiss Income Tax Holidays

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  • Isabel Z. Martinez
  • Emmanuel Saez
  • Michael Siegenthaler

Abstract

This paper estimates intertemporal labor supply responses to two-year long income tax holidays staggered across Swiss cantons. Cantons shifted from an income tax system based on the previous two years' income to a standard annual pay as you earn system, leaving two years of income untaxed. We find significant but quantitatively very small responses of wage earnings with an inter-temporal elasticity of .025 overall. High wage income earners and especially the self-employed display larger responses with elasticities around .1 and .25 respectively, most likely driven by tax avoidance. We find no effects along the extensive margin at all.

Suggested Citation

  • Isabel Z. Martinez & Emmanuel Saez & Michael Siegenthaler, 2018. "Intertemporal Labor Supply Substitution? Evidence from the Swiss Income Tax Holidays," NBER Working Papers 24634, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:24634
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    JEL classification:

    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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