Séminaire

Earnings Responses to Even Higher Taxes.

Hakan Selin (Institute for Evaluation of Labour Market and Education Policy in Sweden)

29 mai 2020, 11h00–12h30

Salle Zoom Video

Public Economics

Résumé

Sweden introduced a phase-out of the earned income tax credit in 2016. As a consequence, taxpayers belonging to the top 5 percent of the earnings distribution, already facing high taxes, experienced a 7 % reduction intheirnet-of-taxshares. Whileexploitingrichfull-populationadministrative data up to 2017, we evaluate earnings responses to the reform. When graphically and econometrically comparing earnings growth at different segments of the distribution, we estimate a significant relative earnings reduction in the treatment group immediately appearing in 2016, and growingin2017. Theimpliedearningselasticityisfairlylowandaround0.1. We interprettheessentialfeaturesoftheresponseusingasimulationmodel,in which people have noisy perceptions of the piece-wise linear tax code. To simulate the empirically observed response, we need to add more noise to perceptions than what is motivated by earnings uncertainty alone.