Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/265723 
Year of Publication: 
2022
Series/Report no.: 
IZA Discussion Papers No. 15502
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
This paper provides quasi-experimental evidence on the effects of income taxes on gross hourly wages by utilizing administrative data and a tax reform in Denmark. The reform introduced joint taxation to a middle tax bracket, bringing large changes to the tax system facing married couples. Using variation in spousal income for identification, we present non-parametric graphical evidence based on a difference-in-differences design among working married males. First, we find hetero- geneous effects across income levels. For low-income workers, taxes have negative and dynamic effects on wages. Their elasticity of wages (with respect to net-of-marginal-tax rates) is close to one. For higher-income workers, the effects are small and static, with an elasticity of approximately 0.2. Second, wages respond to taxes through human capital accumulation and job changes. Finally, with smaller magnitudes than wages, daily hours worked also respond negatively to taxes, which contrasts with the prediction from a standard labor supply-and-demand model.
Subjects: 
income taxation
administrative data
tax reforms
difference-in-differences
gross hourly wages
labor supply
human capital accumulation
job changes
JEL: 
H22
H24
J22
J24
J30
J62
Document Type: 
Working Paper

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