Labour supply effects of delayed taxation

The purpose of the project is to examine whether delayed taxation can reduce the distortions caused by labour income taxation and increase welfare for individuals who have limited access to borrowing against future income. Under delayed taxation, taxpayers can postpone payment of part of the tax on their current earnings at a low interest rate.

In the theoretical part, the researchers analyse how delayed taxation affects the ability to smooth consumption over the life cycle, work incentives and government finances. They also assess welfare effects using a model calibrated to the Norwegian economy with register data. Tax rates and the share of taxes that can be delayed are optimised jointly.

In the empirical part, the researchers study Norway's system for converting student loans into grants. Earnings above an income threshold reduce the amount converted into grants, increasing the debt to be repaid later. This acts as a delayed tax on additional earnings. The researchers compare students' earnings responses at this threshold with responses at a regular income tax threshold and examine how these responses vary with students' financial resources.

Project leader

Spencer Bastani

Other project participants

Marius Ring, Yale University, University of Texas at Austin and NBER.