Earnings responses to even higher taxes open access Dingquan Miao, Håkan Selin, Martin Söderström
By: Miao, Dingquan
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Contributor(s): Selin, Hakan | Söderström, Martin.
Material type: 
ArticleSubject(s): SUECIA | REFORMA | IMPUESTO SOBRE LA RENTA DE LAS PERSONAS FISICAS | IMPUESTO SOBRE SUCESIONES Y DONACIONES | DISTRIBUCION
In:
The Economic Journal v. 135, n. 667, April 2025, p. 838-860Summary: 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 to higher taxes. Using a simple and graphical cross-sectional method, we estimate an earnings elasticity of 0.16, evaluated four years after the reform. Our analysis indicates that the response is driven by adjustments in wage rates, and not by changes to hours, job switches or income shifting. We interpret the magnitude and preciseness of the response using a realistically calibrated simulation model in which people face uncertain marginal tax rates due to earnings dynamics.
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| OP 282/2025/665 The Economic Journal | OP 282/2025/665-1 Optimal taxation of capital income with heterogeneous rates of return | OP 282/2025/667 The Economic Journal | OP 282/2025/667-1 Earnings responses to even higher taxes open access | OP 282/2025/667-2 Trade and domestic policies under monopolistic competition | OP 282/32/922 Trade Board and the Cave Committee | op 283 Economica |
Bibliografía.
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 to higher taxes. Using a simple and graphical cross-sectional method, we estimate an earnings elasticity of 0.16, evaluated four years after the reform. Our analysis indicates that the response is driven by adjustments in wage rates, and not by changes to hours, job switches or income shifting. We interpret the magnitude and preciseness of the response using a realistically calibrated simulation model in which people face uncertain marginal tax rates due to earnings dynamics.
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