The Elasticity of Taxable Labour Income in the Netherlands

Abstract

We study the elasticity of taxable labour income in the Netherlands. We use a large and rich data set, including both financial and demographic variables, for the period 1999-2005. The 2001 tax reform generates large exogenous variation in marginal tax rates at different segments of the income distribution. For all workers, we find an elasticity of 0.10 in the short run, 1 year after the reform, rising to 0.24 in the medium to longer run, 5 years after the reform. Furthermore, we find that the elasticity is higher for higher incomes and women. Also, we find that the elasticity of taxable labour income is higher than the elasticity of annual hours worked.

Heterogeneity in Labour Supply Responses: Evidence from a Major Tax Reform

“…Finally, it would also be interesting to study how other decision margins than labour supply and human capital formation are affected by the tax‐benefit system. The first estimates of the elasticity‐of‐taxable‐income for the Netherlands are presented in Jongen and Stoel (). We will use the results in this paper and subsequent studies in the construction of a new microsimulation model at CPB Netherlands Bureau for Economic Policy Analysis to simulate tax‐benefit reforms, along the lines of, for example, the MITTS model for Australia (Creedy et al ., ) and the IZAΨMOD model for Germany (Löffler et al ., ).…”

“…Indeed, the empirical literature suggests that the so‐called elasticity‐of‐taxable‐income, which captures not only labour supply but also other responses, is much higher for higher incomes (Gruber and Saez, ; Saez et al ., ). Jongen and Stoel () also estimate a substantial elasticity‐of‐taxable‐income for high incomes in the Netherlands. However, there is an active debate over whether the elasticity‐of‐taxable‐income for high income earners measures real distortions (Chetty, ; Saez et al ., ; Piketty et al ., ; Doerrenberg et al ., ).…”

Non-bunching at kinks and notches in cash transfers in the Netherlands

“…3 A similar result is found for the Netherlands. Jongen and Stoel (2016) exploit variation induced by the 2001 tax reform in the Netherlands, following the Gruber-Saez methodology (Gruber and Saez, 2002), and find a long run elasticity of 0.24. Dekker et al (2016) apply the kink-based bunching approach to tax bracket thresholds in the Netherlands and find small elasticities, close to zero for singles and single parents.…”

The Elasticity of Taxable Income: A Meta-Regression Analysis

“…Study N in % Aarbu and Thoresen (2001) 8 0.56 Arrazola et al (2014) 8 0.56 Arrazola-Vacas et al (2015) 26 1.83 Auten and Carroll (1999) 20 1.41 Auten et al (2008) 10 0.70 Auten and Joulfaian (2009) 24 1.69 Auten and Kawano (2014) 10 0.70 Bakos et al (2010) 21 1.48 Blomquist and Selin (2010) 10 0.70 Burns and Ziliak (2017) 64 4.51 Carey et al (2015) 6 0.42 Carroll (1998) 12 0.85 Chetty et al (2011) 6 0.42 Doerrenberg et al (2017) 16 1.13 Ericson et al (2015) 5 0.35 Gelber (2014) 16 1.13 Giertz (2007) 69 4.86 Giertz (2009) 59 4.15 Giertz (2010) 126 8.87 Gottfried and Schellhorn (2004) 11 0.77 Gottfried and Witczak (2009) 15 1.06 Gruber and Saez (2002) 35 2.46 Hansson (2007) 30 2.11 Harju and Matikka (2016) 14 0.99 Heim (2010) 14 0.99 Heim and Mortenson (2016) 14 0.99 Holmlund and Söderström (2011) 36 2.54 Jongen and Stoel (2013) 54 3.80 Kiss and Mosberger (2014) 15 1.06 Kleven and Schultz (2014) 114 8.03 Kopczuk (2005) 91 6.41 Kopczuk (2015) 30 2.11 Kumar and Liang (2015) 10 0.70 Lehmann et al (2013) 18 1.27 Lindsey (1987) 13 0.92 Looney and Singhal (2006) 14 0.99 Massarrat Mashhadi and Werdt (2012) 9 0.63 Matikka (2016) 18 1.27 Moffitt and Wilhelm (2000) 39 2.75 Mortenson ( 2016 Note: Both graphs plot the distribution of income elasticities th...…”