Increasing Hours Worked: Moonlighting Responses to a Large Tax Reform

Abstract

Moonlighting is increasingly popular in OECD countries, with 5 to 10% of workers holding two or more jobs. However, little is known about the responsiveness of moonlighting to financial incentives due to the lack of identifying variation. This paper studies a unique reform in Germany that allowed workers to hold small secondary jobs tax-free, decreasing the marginal tax rate by between 19.5 to 66pp. I show that the reform resulted in a dramatic increase in moonlighting that was not offset by reductions in primary earnings, and that hours constraints are a key determinant of moonlighting.

Keywords: multiple job holding, moonlighting, payroll tax, income tax

JEL Classification: H24, J22