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I provide estimates of the compensated 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 (Gruber and Saez, 2002), 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, 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 of 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. 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 sociodemographic covariates.
My favourite specification yields compensated elasticities of approximately 0.2 for income tax reforms (consistent with previous estimations), 0.1 for in-work (RSA activité) reform, and not significant for other means-tested benefits (family allowance and minimum income support). 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 40 years old.
