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Taxes, Wages and Working Hours

Author

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  • Ericson, Peter

    (Sim Solution)

  • Flood, Lennart

    () (Department of Economics, School of Business, Economics and Law, Göteborg University)

Abstract

This paper presents estimates of individuals’ responses in hourly wages to changes in marginal tax rates. Estimates based on register panel data of Swedish households covering the period 1992 to 2007 produce significant but relatively small net-of-tax rate elasticities. The results vary with family type, with the largest elasticities obtained for single males and the smallest for married/cohabitant females. Despite these seemingly small elasticities, evaluation of the effects of a reduced state tax using a microsimulation model shows that the effort effect matters. The largest effect is due to changes in number of working hours yet including the effort effect results in an almost self-financed reform. As a reference to the earlier literature we also estimate taxable income elasticities. As expected, these are larger than for the hourly wage rates. However, both specifications produce significantly and positive income effects.

Suggested Citation

  • Ericson, Peter & Flood, Lennart, 2011. "Taxes, Wages and Working Hours," Working Papers in Economics 514, University of Gothenburg, Department of Economics.
  • Handle: RePEc:hhs:gunwpe:0514
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    File URL: http://hdl.handle.net/2077/26645
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    1. Jorgen Hansen & Xingfei Liu, 2015. "Estimating labour supply responses and welfare participation: Using a natural experiment to validate a structural labour supply model," Canadian Journal of Economics, Canadian Economics Association, vol. 48(5), pages 1831-1854, December.
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    1. repec:kap:jecinq:v:15:y:2017:i:4:d:10.1007_s10888-017-9368-4 is not listed on IDEAS
    2. Lundberg, Jacob, 2017. "Analyzing tax reforms using the Swedish Labour Income Microsimulation Model," Working Paper Series 2017:12, Uppsala University, Department of Economics.
    3. Bastani, Spencer & Lundberg, Jacob, 2016. "Political preferences for redistribution in Sweden," Working Paper Series 2016:13, Uppsala University, Department of Economics.
    4. 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.
    5. Jacob Lundberg, 2017. "The Laffer curve for high incomes," LIS Working papers 711, LIS Cross-National Data Center in Luxembourg.
    6. Spencer Bastani & Jacob Lundberg, 2016. "Political Preferences for Redistribution in Sweden," CESifo Working Paper Series 6205, CESifo Group Munich.
    7. Sedigh, Golnaz & Devlin, Rose Anne & Grenier, Gilles & Deri Armstrong, Catherine, 2017. "Revisiting the relationship between wages and sleep duration: The role of insomnia," Economics & Human Biology, Elsevier, vol. 24(C), pages 125-139.

    More about this item

    Keywords

    income taxation; hourly wage rates; work effort; micro simulation;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • 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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