14th journées Louis-André Gérard-Varet

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The Elasticity of Taxable Labour Income in the Netherlands
Egbert Jongen, Maaike Stoel

Last modified: 2015-05-11

Abstract


We study the elasticity of taxable labour income of employees in the Netherlands. The large 2001 Dutch tax reform generates substantial variation in marginal tax rates at dierent segments of the income distribution. We instrument the endogenous marginal tax rates with synthetic marginal tax rates using projected income. We control for exogenous income growth by including a number of socioeconomic variables, sector dummies, and log base-year income or a spline in log base-year income. For all workers we find an elasticity of 0.24. For workers with high labour income the elasticity rises to 0.26 (50-100K) and 0.46 ( >50K). The elasticity is higher for women than for men. Over all workers, the elasticity is only slightly larger than the elasticity of annual hours worked, for high-wage workers the elasticity is much larger than the elasticity of annual hours worked.

Keywords


Elasticity of taxable income; Netherlands