Earnings responses to even higher taxes

We exploit a recent Swedish tax reform, implying higher marginal tax rates for the top 5% of the earnings distribution, to learn about earnings responses in an economy where taxes already are high.

Published: 30 May 2022

Using a simple and graphical cross sectional method, we estimate earnings elasticities in the range 0.13-0.16. We interpret the response using a simulation model in which people face uncertain marginal tax rates due to earnings dynamics. The tax response is surprisingly sharp given the earnings variability at the top of the earnings distribution.

Keywords: Earnings supply, Income taxation.
JEL Classification: H24; J22.


IFAU Working Paper 2022:12 is written by Dingquan Miao (Linnaeus University), Håkan Selin (IFAU, UCLS och UCFS) and Martin Söderström (IFAU och UCLS). For further information, please contact Håkan Selin at  hakan.selin@ifau.uu.se, or +46 (0)18-471 60 63.