Income Taxes, Gross Hourly Wages, and the Anatomy of Behavioral Responses: Evidence from a Danish Tax Reform
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arXiv
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| Format: | Preprint |
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2025
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| _version_ | 1866918163685310464 |
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| author | Sumiya, Kazuhiko Bagger, Jesper |
| author_facet | Sumiya, Kazuhiko Bagger, Jesper |
| contents | This paper provides quasi-experimental evidence on how income taxes affect gross hourly wages, utilizing Danish administrative data and a tax reform that introduced joint taxation. Exploiting spousal income for identification, we present nonparametric, difference-in-differences graphical evidence among husbands. For low-income workers, taxes have negative and dynamic effects on wages; their wage elasticity with respect to net-of-marginal-tax rates is 0.4. For medium-income workers, the effects are smaller and insignificant. Wages respond to taxes through promotions or job-to-job transitions. Neither daily nor annual hours worked respond significantly; consequently, annual earnings respond to taxes primarily through hourly wages, rather than through labor supply. |
| format | Preprint |
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arxiv_https___arxiv_org_abs_2510_16483 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Income Taxes, Gross Hourly Wages, and the Anatomy of Behavioral Responses: Evidence from a Danish Tax Reform Sumiya, Kazuhiko Bagger, Jesper General Economics Economics This paper provides quasi-experimental evidence on how income taxes affect gross hourly wages, utilizing Danish administrative data and a tax reform that introduced joint taxation. Exploiting spousal income for identification, we present nonparametric, difference-in-differences graphical evidence among husbands. For low-income workers, taxes have negative and dynamic effects on wages; their wage elasticity with respect to net-of-marginal-tax rates is 0.4. For medium-income workers, the effects are smaller and insignificant. Wages respond to taxes through promotions or job-to-job transitions. Neither daily nor annual hours worked respond significantly; consequently, annual earnings respond to taxes primarily through hourly wages, rather than through labor supply. |
| title | Income Taxes, Gross Hourly Wages, and the Anatomy of Behavioral Responses: Evidence from a Danish Tax Reform |
| topic | General Economics Economics |
| url | https://arxiv.org/abs/2510.16483 |