Scandinavian Working Papers in Economics

Memorandum,
Oslo University, Department of Economics

No 4/2022: Behavioural responses to income taxation in Norway

Michael Graber, Magne Mogstad, Gaute Torsvik () and Ola Vestad
Additional contact information
Michael Graber: SSB
Magne Mogstad: University of Chicago
Gaute Torsvik: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Ola Vestad: SSB

Abstract: In this report, we combine theory and empirical estimates for how labor earnings respond to changes in tax rates and non-earned income. We use lottery winnings to obtain variation in non-earned income and tax reforms to obtain variation in the net of tax rate. Combining this information with measures of extensive margin responses and the progressivity of the Norwegian income tax schedule, we are able to point identify uncompensated and compensated behavioral responses to income taxes and therefore to calculate efficiency losses and optimal income tax rates (for given welfare weights).

Keywords: income effect; labor supply elasticities; lottery winnings; efficiency loss; optimal income taxation

JEL-codes: D15; H21; H31; H53; J22

Language: English

42 pages, October 27, 2022

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