IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Hourly wage rate and taxable labor income responsiveness to changes in marginal tax rates

  • Blomquist, Sören
  • Selin, Håkan

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 1980s to estimate the elasticity of the hourly wage rate as well as the taxable labor income elasticity with respect to the net-of-tax rate. We also estimate elasticities with respect to the non-labor income in a way that is novel in the literature. While carefully accounting for the endogeneity of marginal tax rates we find a statistically significant response in wage rates both among married men and women. The estimates of the hourly wage rate elasticity with respect to the net-of-tax rate fall in the range of 0.14-0.16 for males and 0.41-0.57 for females, whereas the corresponding taxable labor income elasticity estimates hover between 0.19-0.21 for males and 0.96-1.44 for women. Moreover, for men we find that the taxable labor income elasticity with respect to non-labor income is statistically significant; the point estimate being - 0.07. This implies that the compensated taxable labor income elasticity is about 5 percentage points higher than the uncompensated one. In general, we consider the estimates for males to be more certain and robust than the estimates for females.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/B6V76-50V5NGW-1/2/5819fd8235916414d83f26c884d89da8
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 94 (2010)
Issue (Month): 11-12 (December)
Pages: 878-889

as
in new window

Handle: RePEc:eee:pubeco:v:94:y:2010:i:11-12:p:878-889
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Heim, Bradley T. & Meyer, Bruce D., 2004. "Work costs and nonconvex preferences in the estimation of labor supply models," Journal of Public Economics, Elsevier, vol. 88(11), pages 2323-2338, September.
  2. Holmlund, B. & Kolm, A.S., 1995. "Progressive Taxation, Wage Setting, and Unemployment , Theory and Swedish Evidence," Papers 1995-15, Uppsala - Working Paper Series.
  3. Blomquist, Sören & Eklöf, Matias & Newey, Whitney, 1997. "Tax Reform Evaluation Using Nonparametric Methods: Sweden 1980 - 1991," Working Paper Series 1997:29, Uppsala University, Department of Economics.
  4. Emmanuel Saez & Joel Slemrod & Seth H. Giertz, 2012. "The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 50(1), pages 3-50, March.
  5. Robert A Moffitt & Mark Wilhelm, 2000. "Taxation and the Labor Supply - Decisions of the Affluent," Economics Working Paper Archive 414, The Johns Hopkins University,Department of Economics.
  6. Saez, Emmanuel, 2003. "The effect of marginal tax rates on income: a panel study of 'bracket creep'," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 1231-1258, May.
  7. Holmlund, Bertil & Söderström, Martin, 2007. "Estimating Income Responses to Tax Changes: A Dynamic Panel Data Approach," Working Paper Series 2007:25, Uppsala University, Department of Economics.
  8. Soren Blomquist & Whitney Newey, 2002. "Nonparametric Estimation with Nonlinear Budget Sets," Econometrica, Econometric Society, vol. 70(6), pages 2455-2480, November.
  9. Hansson, Åsa, 2004. "Taxpayers Responsiveness to Tax Rate Changes and Implications for the Cost of Taxation," Working Papers 2004:5, Lund University, Department of Economics.
  10. Wojciech Kopczuk, 2004. "Tax bases, tax rates and the elasticity of reported income," Discussion Papers 0304-15, Columbia University, Department of Economics.
  11. Martin Feldstein, 1999. "Tax Avoidance And The Deadweight Loss Of The Income Tax," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 674-680, November.
  12. Blomquist, N. Soren, 1988. "Nonlinear taxes and labor supply," European Economic Review, Elsevier, vol. 32(6), pages 1213-1226, July.
  13. Richard B. Freeman & Lawrence F. Katz, 1995. "Differences and Changes in Wage Structures," NBER Books, National Bureau of Economic Research, Inc, number free95-1, December.
  14. Slemrod, Joel & Kopczuk, Wojciech, 2002. "The optimal elasticity of taxable income," Journal of Public Economics, Elsevier, vol. 84(1), pages 91-112, April.
  15. Feldstein, Martin, 1995. "The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 551-72, June.
  16. Giertz, Seth H., 2007. "The Elasticity of Taxable Income over the 1980s and 1990s," National Tax Journal, National Tax Association, vol. 60(4), pages 743-68, December.
  17. Emmanuel Saez, 2004. "Reported Incomes and Marginal Tax Rates, 1960-2000: Evidence and Policy Implications," NBER Chapters, in: Tax Policy and the Economy, Volume 18, pages 117-174 National Bureau of Economic Research, Inc.
  18. Kubik, Jeffrey D., 2004. "The incidence of personal income taxation: evidence from the tax reform act of 1986," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1567-1588, July.
  19. Åsa Hansson, 2007. "Taxpayers' responsiveness to tax rate changes and implications for the cost of taxation in Sweden," International Tax and Public Finance, Springer, vol. 14(5), pages 563-582, October.
  20. N. S. Blomquist & U. Hansson-Brusewitz, 1990. "The Effect of Taxes on Male and Female Labor Supply in Sweden," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 317-357.
  21. Chetty, Nadarajan, 2009. "Is the Taxable Income Elasticity Sufficient to Calculate Deadweight Loss? The Implications of Evasion and Avoidance," Scholarly Articles 9748527, Harvard University Department of Economics.
  22. Giertz, Seth, 2004. "Recent Literature on Taxable-Income Elasticities," MPRA Paper 16159, University Library of Munich, Germany.
  23. Blomquist, N Soren, 1979. " Wage Rates and Personal Characteristics," Scandinavian Journal of Economics, Wiley Blackwell, vol. 81(4), pages 505-20.
  24. Alexander Gelber, 2008. "Taxation and Family Labor Supply," 2008 Meeting Papers 249, Society for Economic Dynamics.
  25. Gruber, Jon & Saez, Emmanuel, 2002. "The elasticity of taxable income: evidence and implications," Journal of Public Economics, Elsevier, vol. 84(1), pages 1-32, April.
  26. Mary-Anne Sillamaa & Michael R. Veall, 2000. "The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1988 Tax Flattening in Canada," Quantitative Studies in Economics and Population Research Reports 354, McMaster University.
  27. Per-Anders Edin & Bertl Holmlund, 1993. "The Swedish Wage Stucture: The Rise and Fall of Solidarity Wage Policy?," NBER Working Papers 4257, National Bureau of Economic Research, Inc.
  28. Lindsey, Lawrence B., 1987. "Individual taxpayer response to tax cuts: 1982-1984 : With implications for the revenue maximizing tax rate," Journal of Public Economics, Elsevier, vol. 33(2), pages 173-206, July.
  29. Aarbu, Karl O. & Thoresen, Thor O., 2001. "Income Responses to Tax Changes--Evidence from the Norwegian Tax Reform," National Tax Journal, National Tax Association, vol. 54(n. 2), pages 319-38, June.
  30. Gerald Auten & Robert Carroll, 1999. "The Effect Of Income Taxes On Household Income," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 681-693, November.
  31. Slemrod, Joel, 1998. "Methodological Issues in Measuring and Interpreting Taxable Income Elasticities," National Tax Journal, National Tax Association, vol. 51(n. 4), pages 773-88, December.
  32. Feldstein, Martin, 1995. "Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act," Scholarly Articles 2766676, Harvard University Department of Economics.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:pubeco:v:94:y:2010:i:11-12:p:878-889. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.