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Labor Supply Responses to Learning the Tax and Benefit Schedule

Author

Listed:
  • Andreas R. Kostøl
  • Andreas S. Myhre

Abstract

Despite the implications for policy, empirical evidence on the relative importance of factors that shape labor supply responses is missing. This paper helps fill this gap and quantifies the role of information frictions versus other frictions by combining notches in the Norwegian welfare system and quasi-experimental variation in access to information about the slope and location of kinks. While we estimate a frictionless elasticity of 0.3, overall frictions attenuate this elasticity by about 70 percent. We find the information letter increased the earnings elasticity from 0.06 to 0.15, implying that information frictions account for at least 30 percent of total attenuation.

Suggested Citation

  • Andreas R. Kostøl & Andreas S. Myhre, 2021. "Labor Supply Responses to Learning the Tax and Benefit Schedule," American Economic Review, American Economic Association, vol. 111(11), pages 3733-3766, November.
    • Handle: RePEc:aea:aecrev:v:111:y:2021:i:11:p:3733-66
    DOI: 10.1257/aer.20201877
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    Citations

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    Cited by:

    1. Andreas Haller & Stefan Staubli & Josef Zweimüller, 2024. "Designing Disability Insurance Reforms: Tightening Eligibility Rules or Reducing Benefits?," Econometrica, Econometric Society, vol. 92(1), pages 79-110, January.
    2. Bastani, Spencer, 2023. "The marginal cost of public funds: A brief guide," Working Paper Series 2023:14, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    3. Pfeil, Katharina & Kasper, Matthias & Necker, Sarah & Feld, Lars P., 2025. "Asymmetric labor supply responses to tax rate reform: Experimental evidence," Labour Economics, Elsevier, vol. 97(C).
    4. Katharina Pfeil & Matthias Kasper & Sarah Necker & Lars P. Feld, 2024. "Tax System Design, Tax Reform, and Labor Supply," CESifo Working Paper Series 11350, CESifo.
    5. Andrew Caplin & Eungik Lee & Søren Leth-Petersen & Johan Sæverud, 2022. "Communicating Social Security Reform," NBER Working Papers 30645, National Bureau of Economic Research, Inc.
    6. Cahuc, Pierre & Benghalem, Hélène & Villedieu, Pierre, 2021. "The Lock-in Effects of Part-time Unemployment Benefits," CEPR Discussion Papers 15921, C.E.P.R. Discussion Papers.
    7. Dalia Ghanem & D'esir'e K'edagni & Ismael Mourifi'e, 2023. "Evaluating the Impact of Regulatory Policies on Social Welfare in Difference-in-Difference Settings," Papers 2306.04494, arXiv.org, revised Nov 2025.
    8. Gong, Binlei & Shen, Yuhui & Chen, Shuai, 2025. "Diminishing Target-based GDP Manipulation: Evidence from China," Journal of Public Economics, Elsevier, vol. 244(C).
    9. Juliana Londoño-Vélez & Javier Avila-Mahecha, 2024. "Behavioral Responses to Wealth Taxation: Evidence from Colombia," NBER Working Papers 32134, National Bureau of Economic Research, Inc.
    10. Spencer Bastani, 2025. "The marginal value of public funds: a brief guide and application to tax policy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 32(4), pages 919-956, August.
    11. Nyman, Pär & Aggeborn, Linuz & Ahlskog, Rafael, 2022. "Filling in the blanks. How does information about the Swedish EITC affect labour supply?," Working Paper Series 2022:9, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    12. Dean R. Hyslop & David C. Maré, 2024. "Earnings bunching at benefit abatement thresholds: evidence from recent policy changes," Motu Working Papers 23_05, Motu Economic and Public Policy Research.
    13. Guida Ayza Estopa, 2024. "Return-to-work policies for disability insurance recipients: The role of financial incentives," French Stata Users' Group Meetings 2024 17, Stata Users Group.
    14. Nyman, Pär & Aggeborn, Linuz & Ahlskog, Rafael, 2023. "Filling in the blanks: How does information about the Swedish EITC affect labour supply?," Labour Economics, Elsevier, vol. 85(C).
    15. Martti Kaila, 2024. "How Do People React to Income-Based Fines? Evidence from Speeding Tickets Discontinuities," CESifo Working Paper Series 11064, CESifo.

    More about this item

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J28 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Safety; Job Satisfaction; Related Public Policy
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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