NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Isabel Z. Martinez

Universit├Ąt St. Gallen
SIAW-HSG
Bodanstrasse 8
CH-9000 St. Gallen
Switzerland

E-Mail: isabel.martinez@unisg.ch
Institutional Affiliations: Universit├Ąt St. Gallen and LISER

NBER Working Papers and Publications

May 2018Intertemporal Labor Supply Substitution? Evidence from the Swiss Income Tax Holidays
with Emmanuel Saez, Michael Siegenthaler: w24634
This paper estimates the intertemporal labor supply (Frisch) elasticity of substitution exploiting an unusual tax policy change in Switzerland. In the late 1990s, Switzerland switched from an income tax system where current taxes were based on the previous two years' income to a standard annual pay as you earn system. This transition created a two-year long, salient, and well-advertised tax holiday. This change occurred both for the federal and local income taxes. Swiss cantons switched to the new regime at different points in time during the 1997--2003 period. Exploiting this variation in timing and using population-wide administrative social security earnings data matched with census data, we identify the Frisch elasticity. We find significant but quantitatively small responses of earnin...
 
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