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Discrete Labor Supply: Quasi-Experimental Evidence and Implications

Author

Listed:
  • Tuomas Kosonen

    (VATT Institute for Economic Research, Finnish Centre of Excellence in Tax Systems Research (FIT))

  • Tuomas Matikka

    (VATT Institute for Economic Research, CESifo)

Abstract
We provide quasi-experimental evidence of discrete labor supply. We utilize a novel institutional setting where a reform shifted an income notch to a higher income level, and compare earnings distributions of treated and non-treated individuals before and after the reform. We find transparent evidence of widespread changes in the earnings distribution, which is consistent with discrete but not continuous labor supply. We present a simple application for estimating changes in a distribution to detect discrete responses to local tax changes.

Suggested Citation

  • Tuomas Kosonen & Tuomas Matikka, 2023. "Discrete Labor Supply: Quasi-Experimental Evidence and Implications," Working Papers 9, Finnish Centre of Excellence in Tax Systems Research.
    • Handle: RePEc:fit:wpaper:9
    as

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    File URL: https://verotutkimus.fi/verotutkimus/wp-content/uploads/2023/04/FIT-WP9-Discrete-Labour-Supply-1.pdf
    File Function: Revised version, 2023
    Download Restriction: no
    File URL: https://urn.fi/URN:ISBN:978-952-274-254-4
    File Function: First version, 2020
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    discrete labor supply; tax elasticity; distributions;
    All these keywords.

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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