Does the Marginal Tax Rate Affect Activity in the Informal Sector?
Research output: Contribution to journal › Journal article › Research › peer-review
This paper uses longitudinal survey data to analyze the sensitivity of informal-sector earnings to a tax reform that reduced the Danish top marginal tax rate from 63 to 56 percent. Studying a general-population representative sample, we find no evidence of informal-sector labor-supply changes caused by the reform. Looking specifically at a sample of vocationally trained males with income close to the tax threshold, we find a significant decrease in the informal-sector participation rate. The evidence shows that taxpayers' understanding of the reform correlates with the response. Finally, back-of-the-envelope calculations show the economic impact is limited.
Original language | English |
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Journal | FinanzArchiv/Public Finance Analysis |
Volume | 77 |
Issue number | 4 |
Pages (from-to) | 317-344 |
ISSN | 0015-2218 |
DOIs | |
Publication status | Published - Dec 2021 |
ID: 286421486