Data and Code for: Labor Supply Responses and Adjustment Frictions: A Tax-Free Year in Iceland

This folder contains code and data for the paper "Labor Supply Responses and Adjustment Frictions: A Tax-Free Year in Iceland".<br><br>Abstract: Labor income earned in Iceland in 1987 went untaxed. I use this episode to study labor supply responses to temporary wage changes. Using a population-wide dataset of earnings and working time and two identification strategies, I estimate intensive and extensive margin Frisch elasticities of 0.4 and 0.09, respectively. Workers with the ability to adjust drive these average responses: extensive margin by young and close-to-retirement cohorts and intensive margin responses by workers in temporally flexible jobs, though secondary jobs contribute to one-tenth of the response. The results suggest that adjustment frictions may similarly explain differences in elasticities within and across countries.