Labor Supply Responses to Income Taxation among Older Couples: Evidence from a Canadian Reform

Derek Messacar

Cahiers de recherche / Working Papers from Institut sur la retraite et l'épargne / Retirement and Savings Institute

Abstract: This paper estimates real and avoidance responses to income taxation among older couples in Canada. Using administrative data and exploiting a unique reform affecting tax on pension income, I observe large effects on labor supply using an instrumental variables approach. However, workers respond to compensated changes in their average rather than marginal tax rates, consistent with ‘schmeduling’ behavior. Further, I show that taxable incomes vary with the availability of deductions, offering credible evidence of tax planning within couples. These findings provide new insights into the black box of intra-household labor supply and have implications for estimating excess burden of taxation.

Keywords: Elasticity of taxable income; tax avoidance; unitary model; collective model; schmeduling; empirical density design; instrumental variables (search for similar items in EconPapers)
JEL-codes: D13 H24 H26 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-age, nep-pbe and nep-pub
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https://ire.hec.ca/wp-content/uploads/2022/11/cahi ... on_older_couples.pdf

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Persistent link: https://EconPapers.repec.org/RePEc:rsi:irersi:10

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