Economics

Søren Leth-Petersen, Peer Ebbesen Skov

Does the Marginal Tax Rate Affect Activity in the Informal Sector?

Section: Articles
FinanzArchiv (FA)

Volume 77 () / Issue 4, pp. 317-344 (28)
Published 28.01.2022

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This paper uses longitudinal survey data to analyze the sensitivity of informal-sector earnings to a tax reform that reduced the Danish top marginal tax rate from 63 to 56 percent. Studying a general-population representative sample, we find no evidence of informal-sector labor-supply changes caused by the reform. Looking specifically at a sample of vocationally trained males with income close to the tax threshold, we find a significant decrease in the informal-sector participation rate. The evidence shows that taxpayers' understanding of the reform correlates with the response. Finally, back-of-the-envelope calculations show the economic impact is limited.
Authors/Editors

Søren Leth-Petersen No current data available.

Peer Ebbesen Skov No current data available.