Applied Economics Lunch Seminar

Du 30/10/2018 de 12:30 à 13:30

Salle R1-09, Campus Jourdan, 48 boulevard Jourdan, 75014 Paris

SICSIC Michaël ()

The elasticity of labor income: evidence from French tax and benefit reforms, 2006-2015

I provide estimates of the elasticity of labor income with respect to the marginal net-of-tax rate (MNTR) on the 2006-2015 period for France. I follow the methodology of the ETI literature using panel data, with several contributions. I exploit not only income tax reforms but also means-tested benefits reforms in order to compare these elasticities. Over the 2006–2015 period covered, the reforms went to different directions (leading to up and downs of MNTR) and some reforms affected MNTR differently for individuals with the same level of income depending on family configuration, which provide good source identification. This variety of reforms enables me to estimate different elasticities for different types of people. I focus on the individual response of labor income but I also compute cross elasticities of other income of the household (spouse labor income and capital income). Finally, I also test various ways to deal with means reversion, heterogeneous income trend, and endogeneity of MNTR, and add lots of controls since the data used provides a great variety of socio-demographic covariates. Estimation yields compensated elasticities of approximately 0.1 for all reforms, 0.2 for income tax reforms, 0.1 for in-work reforms (RSA activité), and not significant for other means-tested benefits (family allowance). This can be explained by the fact that income tax reforms are more salient than benefit reforms. Other results include the fact that the elasticities are higher for the top decile, for single people, and for people between 20 and 30 years old. Moreover, cross elasticities are negative, which is consistent with income shifting.