Labor Supply, Overtime Work and Taxation in Denmark

Traditionally labor supply data does not include explicit information on hours and wages in secondary job or overtime work. We compare the estimated labor supply responses based on budget constraints reflecting detailed information on wages in overtime work and second job with the estimates based on budget constraints which do not include information on overtime work or second jobs. The estimated elasticities are numerically larger when explicit information on overtime and second job work is taken into account. Based on the estimations, we simulate the supply responses of a financed Earned-Income-Tax-Credit (EITC) tax reform which has been proposed lately in Denmark