The Elasticity of Taxable Labour Income in the Netherlands

35 Pages Posted: 28 Jan 2019

See all articles by Egbert Jongen

Egbert Jongen

CPB Netherlands Bureau of Economic Policy Analysis

Maaike Stoel

Ministry of Economic Affairs and Climate Policy, 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 (contractual) annual hours worked.

Keywords: elasticity of taxable income, hours worked, Netherlands

JEL Classification: H24, H31, J22

Suggested Citation

Jongen, Egbert and Stoel, Maaike, The Elasticity of Taxable Labour Income in the Netherlands. IZA Discussion Paper No. 12090. Available at SSRN: https://ssrn.com/abstract=3323205

Egbert Jongen (Contact Author)

CPB Netherlands Bureau of Economic Policy Analysis ( email )

P.O. Box 80510
2508 GM The Hague, 2585 JR
Netherlands

Maaike Stoel

Ministry of Economic Affairs and Climate Policy, Netherlands ( email )

Bezuidenhoutseweg 73
The Hague, 2594 AC
Netherlands

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