Tax Reforms and Intertemporal Shifting of Wage Income
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.
Latest releases on the same welfare topic
Interventions
Interventions report
Case stories – NExTWORK
April 2024
Interventions
Podcast
Differences in outcomes between men and women from cradle to grave
April 2024
Research
Book
Audio book
– What we know about immigration and integration
April 2024
Research
Knowledge overview
Foreign labor has limited significance for state finances
April 2024