The Norwegian Labor Income Tax Credit Experiment: The effects on labor supply

The Norwegian Ministry of Finance announced in May 2025 that the government intended to execute an experiment with a tax credit on labor income to incentivize increased labor market participation among the young (aged 20-35). 8% of the eligible individuals (approximately 100,000) received the credit. The initial proposal was based on simulations on administrative data from Norway conducted by The Frisch Centre and Norwegian Fiscal Studies. These simulations were documented in https://frischsenteret.no/wp-content/uploads/2025/10/Utredning-om-forsoksordning-med-arbeidsfradrag.pdf and in the public hearing documents available at https://www.regjeringen.no/contentassets/e55f2428a81f436188caf2d496fbd674/horingsnotat-forsoksordning-med-arbeidsfradrag-for-unge.pdf. These documents provided the background for the experiment and the intervention.
The experiment, based on the initial hearing rounds from May 2025, was included in the government budget for 2026 proposed in October 2025. All individuals registered with the tax authorities in 2025 and aged 20-35 in 2026 were eligible to receive the credit, with one exception: Foreign workers with limited tax liability were not eligible. The eligible population amounted to a total of around 1.3 million individuals. Among these, around 100,000 persons were drawn within strata based on age bins, gender, and earnings history realized in the first three quarters of 2025. Treatment was assigned using a publicly available code. See "Description of the experiment" for additional details.
Recipients of the credit (the treated) could credit up to 125,000 NOK from labor income. This increased the minimum credit level to 345,000 NOK for labor income. The credit was phased out from 345,000 NOK to 647,000 NOK. Tax on labor income above 657,500 NOK was unaffected. See attachments for more details.

2025-12-31

2030-12-31

Labor market participation in terms of labor income and participation defined as positive labor earnings. See the pre analysis plan attached for additional details.

We will collect labor income from the administrative employment-employer registry in Norway (A-meldingen) to measure short-term and granular data on earnings and participation. These data are reported monthly from employers to tax authorities and include all individuals formally employed or receiving any form of compensation from firms. Our main short-term labor income outcome will be LONN_KONTANT (or alternatively named KONTANT_LONN) defined in A-meldingen. These data are available with a lag of arount 4 months.

For longer-term outcomes we will use labor income for the yearly tax registry do define participation and identify intensive and extensive margin responses. The are availble with a substantial lag around 1 year

See attachments for more details.

See attachments

See attachments

The experiment was executed by the Norwegian tax authorities based on input and simulations performed by researchers at the Frisch Centre and Norwegian Fiscal Studies. A random sample of approximately 100,000 individuals (8 percent of the eligible) were drawn to receive a reduction in the labor income tax base equal to 125,000 NOK. The sample was restricted to persons aged 20 to 35 in 2026 with a tax record in 2025. Foreign workers with limited tax liability were not eligible to receive the credit. Having a tax record implied that the tax authorities had calculated an individual tax rate for the income year 2025. This was not restricted to persons actually paying taxes.

The randomization was performed by the tax authorities, who ran a Python script on qualifying individuals. The Python script was made publicly available here: https://www.regjeringen.no/no/aktuelt/onsker-mer-kunnskap-for-a-fa-flere-i-arbeid/id3124393/?expand=factbox3124489. The randomization first divided the eligible population into strata based on gender, income in 2025, and age groups. The probability of receiving the credit was a priori equal for all individuals. See attachments for more details.

Not available

The randomization if performed by the Norwegian tax authorities using a python-script developed by the Tax authorities and the researchers. The script is publicly available and is also reported in the attachments

The randomization is performed on the individual level within strata based on tax liability status, inhabitant status, labor income in 2024, business income in 2024, labor income in 2025, social insurance transfers in 2025, gender and birth year.

No

Number of stratas. around 13 300

The number of observations will include all taxable individuals in 2025 aged 20 to 35 in 2026. This is approximately 1.3 million

8 percent of the eligible population, approximately 100 000 are treated (group A) in terms of receiving the credit. 46 percent receive additional information on their tax schedule (group B). The rest are in the control group. See attachments for additional details.

Participation yearly: standard error: 0.08pp, MDE(80%): 0.23pp Earnings yearly: standard error: 0.006 G, MDE(80%): 0.015G

Pre analysis plan detailed