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Tax Reforms and Intertemporal Shifting of Wage Income: Evidence from Danish Monthly Payroll Records

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  • Claus Thustrup Kreiner
  • Søren Leth-Petersen
  • Peer Ebbesen Skov

Abstract

This paper uses monthly payroll records for all Danish employees to identify widespread intertemporal shifting of labor income in response to a tax reform that significantly reduced the marginal tax rates for one-fourth of all employees. When ignoring shifting, the estimate of the overall elasticity of taxable income equals 0.1, and the elasticity is increasing with earnings. When removing the shifting component, the elasticity is close to zero at all earnings levels. The evidence also indicates that tax salience, liquidity constraints and firm willingness to cooperate in shifting are important factors in explaining shifting behavior.

Suggested Citation

  • Claus Thustrup Kreiner & Søren Leth-Petersen & Peer Ebbesen Skov, 2016. "Tax Reforms and Intertemporal Shifting of Wage Income: Evidence from Danish Monthly Payroll Records," American Economic Journal: Economic Policy, American Economic Association, vol. 8(3), pages 233-257, August.
  • Handle: RePEc:aea:aejpol:v:8:y:2016:i:3:p:233-57
    Note: DOI: 10.1257/pol.20140233
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    References listed on IDEAS

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    1. repec:eee:pubeco:v:151:y:2017:i:c:p:41-55 is not listed on IDEAS
    2. Kreiner, Claus Thustrup & Leth-Petersen, Søren & Skov, Peer Ebbesen, 2017. "Pension saving responses to anticipated tax changes: Evidence from monthly pension contribution records," Economics Letters, Elsevier, vol. 150(C), pages 104-107.
    3. Paetzold, Jörg & Winner, Hannes, 2016. "Taking the high road? Compliance with commuter tax allowances and the role of evasion spillovers," Journal of Public Economics, Elsevier, vol. 143(C), pages 1-14.
    4. Doerrenberg, Philipp & Peichl, Andreas & Siegloch, Sebastian, 2014. "Sufficient Statistic or Not? The Elasticity of Taxable Income in the Presence of Deduction Possibilities," IZA Discussion Papers 8554, Institute for the Study of Labor (IZA).
    5. Neisser, Carina, 2017. "The elasticity of taxable income: A meta-regression analysis," ZEW Discussion Papers 17-032, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    6. Søren Leth-Petersen & Peer Ebbesen Skov, 2014. "Does the marginal tax rate affect activity in the informal sector?," Study Papers 64, Rockwool Foundation Research Unit.
    7. Claus Thustrup Kreiner & S?ren Leth-Petersen & Peer Ebbesen Skov, 2014. "Year-End Tax Planning of Top Management: Evidence from High-Frequency Payroll Data," American Economic Review, American Economic Association, vol. 104(5), pages 154-158, May.
    8. Doerrenberg, Philipp & Peichl, Andreas & Siegloch, Sebastian, 2017. "The elasticity of taxable income in the presence of deduction possibilities," Journal of Public Economics, Elsevier, vol. 151(C), pages 41-55.
    9. Jarkko Harju & Tuomas Matikka, 2016. "The elasticity of taxable income and income-shifting: what is “real” and what is not?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(4), pages 640-669, August.
    10. Stuart Adam & James Browne & David Phillips & Barra Roantree, 2017. "Frictions and taxpayer responses: evidence from bunching at personal tax thresholds," IFS Working Papers W17/14, Institute for Fiscal Studies.
    11. Alstadsæter, Annette & Jacob, Martin, 2013. "Who participates in tax avoidance?," arqus Discussion Papers in Quantitative Tax Research 148, arqus - Arbeitskreis Quantitative Steuerlehre.
    12. Marianne Simonsen & Lars Skipper & Niels Skipper, 2017. "Piling Pills? Forward-Looking Behavior and Stockpiling of Prescription Drugs," Economics Working Papers 2017-08, Department of Economics and Business Economics, Aarhus University.

    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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