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Increasing Hours Worked: Moonlighting Responses to a Large Tax Reform

Author

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  • Alisa Tazhitdinova

Abstract

Moonlighting is increasingly popular in OECD countries, with 5 to 10 percent of workers holding two or more jobs. However, little is known about the responsiveness of moonlighting to financial incentives due to the lack of identifying variation. This paper studies a unique reform in Germany that allowed workers to hold small secondary jobs tax-free, decreasing the marginal tax rate by between 19.5 to 66 pp. I show that the reform resulted in a dramatic increase in moonlighting that was not offset by reductions in primary earnings and that hours constraints are a key determinant of moonlighting.

Suggested Citation

  • Alisa Tazhitdinova, 2022. "Increasing Hours Worked: Moonlighting Responses to a Large Tax Reform," American Economic Journal: Economic Policy, American Economic Association, vol. 14(1), pages 473-500, February.
    • Handle: RePEc:aea:aejpol:v:14:y:2022:i:1:p:473-500
    DOI: 10.1257/pol.20190786
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    Cited by:

    1. is not listed on IDEAS
    2. Galassi, Gabriela, 2021. "Labor Demand Response to Labor Supply Incentives: Lessons from the German Mini-Job Reform," IZA Discussion Papers 14248, IZA Network @ LISER.
    3. Choe, Chung & Oaxaca, Ronald L. & Renna, Francesco, 2020. "Income Taxation and Dual Job Labour Supply," IZA Discussion Papers 13107, IZA Network @ LISER.
    4. Tazhitdinova, Alisa, 2020. "Do only tax incentives matter? Labor supply and demand responses to an unusually large and salient tax break," Journal of Public Economics, Elsevier, vol. 184(C).
    5. Isabel Z. Martínez & Emmanuel Saez & Michael Siegenthaler, 2021. "Intertemporal Labor Supply Substitution? Evidence from the Swiss Income Tax Holidays," American Economic Review, American Economic Association, vol. 111(2), pages 506-546, February.
    6. Gabriela Galassi, 2021. "Labor Demand Response to Labor Supply Incentives: Lessons from the German Mini-Job Reform," Staff Working Papers 21-15, Bank of Canada.

    More about this item

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • 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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