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Behavioural Effects of a Top Marginal Income Tax Rate Increase

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  • Varjonen-Ollus, Reetta

Abstract

This paper estimates the elasticity of taxable income (ETI) for the top 1% of income earners, utilising a change in taxation in 2013, when a new top tax bracket was added to the earned income tax schedule in Finland. The response of top earners is crucial in determining the revenue-maximising level of top income taxation, and this study contributes to the top income ETI literature by employing a differences-in-differences method comparing changes in income within the same income groups for different time periods. The results suggest that the ETI for top wage earners (0.5) may be higher than found in previous population estimates. This finding is primarily driven by individuals experiencing fewer labour market frictions, such as those who have changed employer or have multiple concurrent employers.

Suggested Citation

  • Varjonen-Ollus, Reetta, 2025. "Behavioural Effects of a Top Marginal Income Tax Rate Increase," Working Papers 180, VATT Institute for Economic Research.
    • Handle: RePEc:fer:wpaper:180
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    References listed on IDEAS

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    1. Dingquan Miao & Håkan Selin & Martin Söderström, 2025. "Earnings Responses to Even Higher Taxes," The Economic Journal, Royal Economic Society, vol. 135(667), pages 838-860.
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    5. Weber, Caroline E., 2014. "Toward obtaining a consistent estimate of the elasticity of taxable income using difference-in-differences," Journal of Public Economics, Elsevier, vol. 117(C), pages 90-103.
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    Cited by:

    1. Ropponen, Olli, 2026. "The Societal Costs of Taxation – What Do We Know About the Adverse Effects of Finnish Taxes," ETLA Reports 172, The Research Institute of the Finnish Economy.

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    Keywords

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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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