Tax Reforms and Intertemporal Shifting of Wage Income

Research report

December 2013


Externally reviewed

Evidence from Danish Monthly Payroll Records

Study Paper No. 62


Written by: Peer Ebbesen Skov Claus Thustrup Kreiner and Søren Leth-Petersen


The Danish tax reform package of 2010 abolished the middle tax band, thus leading to a reduction in the rate of tax on the last money earned from 63 percent in 2009 to 56 percent in 2010. The prospect of a lower rate of tax in 2010 prompted some taxpayers to transfer some salary payments from the end of 2009 to January 2010 in order to reduce the amount of tax they paid. The taxpayers who moved their income from one tax year to the next were found to be people with high incomes, people who were among the highest earners at their workplace, people who had a high level of liquidity and people who were employed in small firms. The researchers found that this form of tax planning occurred in many sectors, but that there was no clear indication of it taking place among public employees. This shifting of salary payments proved to be crucial for the calculation of the effects of the tax reform on the supply of labour. The entire short-term effect of the reform on taxable income (i.e. on the supply of labour) was attributable to the shifting of salary payments from one tax year to the next.