Governments grapple with the intricate task of designing income tax systems that balance various trade-offs. Concerns about distortionary impacts on labor supply, tax evasion, and income redistribution have prompted many countries to abolish progressive income taxes, introduce flat-rate systems, and reintroduce graduated tax schemes over the last few decades. This paper investigates the effects of transitioning from a flat to a progressive income tax system, utilizing a significant 2007 tax reform in Uruguay. Our research design employs cross-sectional variation in tax changes and administrative records to implement a difference-in-difference approach. Results reveal asymmetric responses to tax rate changes, with workers who experienced tax reductions (winners) reporting increases in labor earnings, while those who faced tax increases (losers) exhibited declines in earnings. We find indicative evidence that changes in labor earnings reflect reporting responses rather than real labor supply adjustments, particularly for winners.

In order to analyse recent trends in labour supply in Germany, I estimate a static discrete choice model of unitary household labour supply for each year 1998 to 2018. I find that the own-wage labour supply elasticities implied by the models have increased over the last two decades, especially for couples around the turn of the century and for single males. While females became less sensitive to their partner's wage, the responsiveness of males to the partner's wage slightly increased. In a decomposition analysis, using counterfactual model-data combinations, I find that compositional changes in demographics play only a minor role in the shift in males' own- and cross-wage elasticities, since most of the change in elasticities is driven by preferences or labour market restrictions. For females, changes in composition play a bigger role in the rise of elasticities.

This study examines how differential tax treatment affects the transition from employment to self-employment, using administrative data from Poland. In 2004, a significant tax cut for business owners reduced their top marginal rate from 40% to 19%, while employees remained subject to a progressive schedule with a 40% top rate. The reform led to a 17% increase in high-income employees switching to self-employment within five years, particularly among the highest earners. The transitions were mainly to long-term solo self-employment in high-skilled service industries. A subsequent 2009 reform reducing the tax differential temporarily decreased entries to self-employment, but those who had already switched did not return to employment. These findings suggest that large tax differentials increased self-employment's attractiveness as an alternative to employment, but also increased the proportion of self-employed who do not hire workers.

How does economic activity respond to tax shocks and how do these responses depend on the distributional targeting of the tax change? We shed light on the potentially stimulative effects of tax cuts using thirty years of US tax filing data. Focusing on state income taxes, we show that state-level measures of employment respond positively to tax cuts targeted at the bottom of the income distribution, but find no evidence that economic activity responds to tax shocks aimed at the highest earning households.