American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Labor Supply Responses to Learning the Tax and Benefit Schedule
American Economic Review
vol. 111,
no. 11, November 2021
(pp. 3733–66)
Abstract
Despite the implications for policy, empirical evidence on the relative importance of factors that shape labor supply responses is missing. This paper helps fill this gap and quantifies the role of information frictions versus other frictions by combining notches in the Norwegian welfare system and quasi-experimental variation in access to information about the slope and location of kinks. While we estimate a frictionless elasticity of 0.3, overall frictions attenuate this elasticity by about 70 percent. We find the information letter increased the earnings elasticity from 0.06 to 0.15, implying that information frictions account for at least 30 percent of total attenuation.Citation
Kostøl, Andreas R., and Andreas S. Myhre. 2021. "Labor Supply Responses to Learning the Tax and Benefit Schedule." American Economic Review, 111 (11): 3733–66. DOI: 10.1257/aer.20201877Additional Materials
JEL Classification
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
- I38 Welfare, Well-Being, and Poverty: Government Programs; Provision and Effects of Welfare Programs
- J22 Time Allocation and Labor Supply
- J28 Safety; Job Satisfaction; Related Public Policy
- J31 Wage Level and Structure; Wage Differentials