Taxes and Labor Supply

Abstract

Over 75% of Federal tax revenue is raised through the income tax and FICA taxes.The potential effects on labor supply and economic welfare are important because of the large and increasing reliance on direct taxation.Over the past few years significant legislative changes have occurred with respect to taxation of labor: the 25% tax cuts, indexation, the tax credit for working spouses, and likely increases in FICA taxation.I review recent econometric work which measures the effect of taxes on labor supply and which analyzes the likely effects of tax law changes on labor supply and economic welfare.Sections 1 and 2 develop the theory and econometric techniques for models of labor supply with taxes.Section 3 discusses the various tax systems in the U.S. In Section 4, I present empirical estimates for husbands' and wives' labor supply functions.The economic cost of the tax system is also estimated.In Section 5 the individual questionnaire data for high income individuals is reviewed.Lastly, in Section 6 evidence from the negative income tax experiments and for social security beneficiaries is considered.These latter groups face extremely high marginal tax rates so that evidence beyond that contained in other surveys of labor supply is provided.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 228 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.