Scandinavian Working Papers in Economics

Working Paper Series, Center for Fiscal Studies,
Uppsala University, Department of Economics

No 2013:1: Estimating labour supply elasticities based on cross-country micro data: A bridge between micro and macro estimates?

Markus Jäntti (), Jukka Pirttilä () and Håkan Selin ()
Additional contact information
Markus Jäntti: Swedish Institute for Social Research, Postal: Stockholm University
Jukka Pirttilä: School of Management, Postal: University of Tampere
Håkan Selin: Uppsala Center for Fiscal Studies, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

Abstract: We utilise repeated cross sections of micro data from several countries, available from the Luxembourg Income Study, LIS, to estimate labour supply elasticities, both at the intensive and extensive margin. The benefit of the data is that it spans over four decades and includes a large number of tax reform episodes, with tax rate variation arising both from cross-sectional and country-level differences. Using these data, we investigate whether micro and macro estimates differ in a systematic way. The results do not provide clear support to the view that elasticities at the macro level would be higher than corresponding micro elasticities.

Keywords: Labour supply; earnings; taxation; cross-country comparisons

JEL-codes: E24; H21; J22

35 pages, January 16, 2013

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