Intertemporal Labor Supply Substitution? Evidence from the Swiss Income Tax Holidays
This paper estimates intertemporal labor supply responses to two-year long income tax holidays staggered across cantons in Switzerland. Swiss cantons shifted from an income tax system based on the previous two years' income to a standard annual pay as you earn system, leaving 2 years of income untaxed. We find significant but quantitatively small responses of earnings with an inter-temporal elasticity of .05 overall. Some groups, such as high wage income earners and especially the self-employed display larger responses with elasticities around .1 and .2 respectively. We find no effects along the extensive margin at all and almost no effects on hours of work suggesting that responses are driven primarily by tax avoidance rather than real labor supply.
Document Object Identifier (DOI): 10.3386/w24634