Does the Marginal Tax Rate Affect Activity in the Informal Sector?

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningfagfællebedømt

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.
OriginalsprogEngelsk
TidsskriftFinanzArchiv/Public Finance Analysis
Vol/bind77
Udgave nummer4
Sider (fra-til)317-344
ISSN0015-2218
DOI
StatusUdgivet - dec. 2021

ID: 286421486