Labor Supply Responses and Adjustment Frictions: A Tax-Free Year in Iceland

Sigurdsson, J贸sef

doi:10.1257/pol.20220386

Abstract

Labor income earned in Iceland in 1987 went untaxed. I use this episode to study labor supply responses to temporary wage changes. Using a population-wide dataset of earnings and working time and two identification strategies, I estimate intensive and extensive margin Frisch elasticities of 0.4 and 0.09, respectively. Workers with the ability to adjust drive these average responses: extensive margin by young and close-to-retirement cohorts and intensive margin responses by workers in temporally flexible jobs, though secondary jobs contribute to one-tenth of the response. The results suggest that adjustment frictions may similarly explain differences in elasticities within and across countries.

蝌蚪网

蝌蚪网 Journal:
Economic Policy