Increasing Hours Worked: Moonlighting Responses to a Large Tax Reform

This paper studies a unique reform in Germany that allowed workers to hold small secondary jobs tax-free, decreasing the marginal tax rate by between 19.5 to 66pp.

Published in American Economic Journal: Economic Policy, 2022, 14(1): 473-500

Moonlighting is increasingly popular in OECD countries, with 5 to 10% of workers holding two or more jobs. However, little is known about the responsiveness of moonlighting to financial incentives due to the lack of identifying variation. This research studies a unique reform in Germany that allowed workers to hold small secondary jobs tax-free, decreasing the marginal tax rate by between 19.5 to 66pp. We show that the reform resulted in a dramatic increase in moonlighting that was not offset by reductions in primary earnings, and that hours constraints are a key determinant of moonlighting.

​Increasing Hours Worked: Moonlighting Responses to a Large Tax Reform

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