Tax Reforms and Intertemporal Shifting of Wage Income: Evidence from Danish Monthly Payroll Records

Claus Kreiner and Peer Skov
Authors registered in the RePEc Author Service: Søren Leth-Petersen

No 9697, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Intertemporal shifting of wage income takes place when income earned in one tax year is paid out in another tax year in order to save taxes. Shifting has implications for the evaluation of the distortionary and distributional effects of taxes and may cause serious bias in empirical estimates of the elasticity of taxable income (ETI) for use in policy analysis. Based on new monthly payroll records for the universe of Danish employees we provide evidence of widespread intertemporal shifting of wage income in response to a tax reform that significantly reduced the marginal tax rates for 1/4 of all employees. Ignoring shifting, we estimate the overall ETI to be 0.1 and find that the ETI is increasing in the earnings level. After controlling for shifting, we obtain negligible ETI estimates at all earnings levels. We show that shifting is concentrated on few individuals spread out evenly across industry sectors, and we provide evidence suggesting that tax salience, liquidity constraints and firm willingness to cooperate in shifting are important factors in explaining shifting behavior.

Keywords: Income shifting; Elasticity of taxable income; Monthly payroll records (search for similar items in EconPapers)
JEL-codes: H24 H31 (search for similar items in EconPapers)
Date: 2013-10
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
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Citations: View citations in EconPapers (8)

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Journal Article: Tax Reforms and Intertemporal Shifting of Wage Income: Evidence from Danish Monthly Payroll Records (2016)
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