Intertemporal Labor Supply Substitution? Evidence from the Swiss Income Tax Holidays
Isabel Z. Martínez, Emmanuel Saez, Michael Siegenthaler
American Economic Review · 2021 · Volume 111 · Issue 2
Abstract
This paper estimates intertemporal labor supply responses to two-year long income tax holidays staggered across Swiss cantons. Cantons shifted from an income tax system based on the previous two years' income to a standard annual pay as you earn system, leaving two years of income untaxed. We find significant but quantitatively very small responses of wage earnings with an intertemporal elasticity of 0.025 overall. High wage income earners and especially the self-employed display larger responses with elasticities around 0.1 and 0.25, respectively, most likely driven by tax avoidance. We find no effects along the extensive margin at all.
Keywords
Personal Income and Other Nonbusiness Taxes and Subsidies, includes inheritance and gift taxes, Tax Evasion and Avoidance, Time Allocation and Labor Supply, Labor Demand, Wage Level and Structure, Wage Differentials, Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration, Regional Labor Markets, Population, Neighborhood Characteristics
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