Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/315156 
Year of Publication: 
2025
Series/Report no.: 
CEBI Working Paper Series No. 03/25
Publisher: 
University of Copenhagen, Department of Economics, Center for Economic Behavior and Inequality (CEBI), Copenhagen
Abstract: 
We investigate long-run earnings responses to taxes in the presence of dynamic returns to effort. First, we develop a theoretical model of earnings determination with dynamic returns to effort. In this model, earnings responses are delayed and mediated by job switches. Second, using administrative data from Denmark, we verify our model's predictions about earnings and hours-worked patterns over the lifecycle. Third, we provide a quasi-experimental analysis of long-run earnings elasticities. Informed by our model, the empirical strategy exploits variation among job switchers. We find that the long-run elasticity is around 0.5, considerably larger than the short-run elasticity of roughly 0.2.
Document Type: 
Working Paper

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