To Josef Sigurdsson the Peggy and Richard Musgrave Prize
Josef Sigurdsson, Assistant Professor of Economics at Bocconi University, is the recipient of the Peggy and Richard Musgrave Prize for the best paper presented at IIPF 2020, the 76th Congress of the International Institute of Public Finance.
In his "Labor Supply Responses and Adjustment Frictions: A Tax-Free Year in Iceland", Professor Sigurdsson exploits a natural experiment due to a tax reform in Iceland. "In 1986,", he explains, "the Icelandic government announced a tax reform, replacing a system where this year's taxes were based on last year's income by a pay-as-you-earn withholding-based system. To ensure that during the transition year of 1987, workers would not have to pay taxes simultaneously on their 1986 and 1987 earnings, no taxes were collected on 1987 labor income. This allows me to study labor supply responses to temporary wage changes".
Both labor-market structure and family structure turn out to be important determinants of aggregate employment responses to temporary shocks. Married women with children respond more than husbands, who themselves respond negatively to wives' tax cuts, consistent with substitutability in non-market time.
"My results also indicate that voluntary changes in work constitute a key mechanism in the transmission of aggregate shocks," Prof. Sigurdsson concludes.