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De Economist

, Volume 167, Issue 4, pp 359–386 | Cite as

The Elasticity of Taxable Labour Income in the Netherlands

  • Egbert L. W. JongenEmail author
  • Maaike Stoel
Article
  • 47 Downloads

Abstract

We study the elasticity of taxable labour income in the Netherlands. We use a large and rich data set, including both financial and demographic variables, for the period 1999–2005. The 2001 tax reform generates large exogenous variation in marginal tax rates at different segments of the income distribution. For all workers, we find an elasticity of 0.10 in the short run, 1 year after the reform, rising to 0.24 in the medium to longer run, 5 years after the reform. Furthermore, we find that the elasticity is higher for higher incomes and for women. Also, we find that the elasticity of taxable labour income is higher than the elasticity of (contractual) annual hours worked.

Keywords

Elasticity of taxable income Hours worked Netherlands 

JEL Classification

H24 H31 J22 

Notes

Acknowledgements

We are grateful to Maya Verhoeve and Floris Zoutman for their assistance in calculating the effective marginal tax rates. We have benefitted from comments and suggestions by the editor Marno Verbeek, two anonymous referees, Leon Bettendorf, Nicole Bosch, James Browne, Koen Caminada, Kees Goudswaard, Jonathan Goupille, Bas Jacobs, Henrik Kleven, Marike Knoef, Tuomas Kosonen, Arjan Lejour, Emmanuel Saez, Hakan Selin, Hendrik Vrijburg, Dinand Webbink, Floris Zoutman and seminar and congress participants at CPB Netherlands Bureau for Economic Policy Analysis, Leiden University, the Tinbergen Institute Rotterdam, the CPB Workshop Behavioural Responses to Taxation and Optimal Tax Policy 2013, IIPF 2013, EALE 2013, Journées LAGV 2015 and the ZEW Workshop on Behavioural Responses to Income Taxation 2015.

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.CPB Netherlands Bureau for Economic Policy AnalysisThe HagueThe Netherlands
  2. 2.Department of EconomicsLeiden UniversityLeidenThe Netherlands
  3. 3.IZABonnGermany
  4. 4.Ministry of Economic Affairs and Climate PolicyThe HagueThe Netherlands

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