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The Effects of Progressive Taxation on Labor Supply when Hours and Wages Are Jointly Determined

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  • Daniel Aaronson
  • Eric French
Abstract
This paper extends a standard intertemporal labor supply model to account for progressive taxation as well as the joint determination of hourly wages and hours worked. We show that these two factors can have implications for both estimating labor supply elasticities as well as for using these elasticities in tax analysis. Failure to account for wage-hours ties and progressive taxation may cause the hours response to marginal tax rate changes to be understated by 5 to 30 percent for men.

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  • Daniel Aaronson & Eric French, 2009. "The Effects of Progressive Taxation on Labor Supply when Hours and Wages Are Jointly Determined," Journal of Human Resources, University of Wisconsin Press, vol. 44(2).
    • Handle: RePEc:uwp:jhriss:v:44:y:2009:i2:p386-408
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    Cited by:

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    2. Antonio Cutanda & Juan A. Sanchis, 2022. "Labour supply responses to income tax changes in Spain," Working Papers 2207, Department of Applied Economics II, Universidad de Valencia.
    3. John K. Dagsvik & Zhiyang Jia, 2016. "Labor Supply as a Choice Among Latent Jobs: Unobserved Heterogeneity and Identification," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 31(3), pages 487-506, April.
    4. Michael P. Keane, 2011. "Labor Supply and Taxes: A Survey," Journal of Economic Literature, American Economic Association, vol. 49(4), pages 961-1075, December.
    5. Juan Alberto Sanchis Llopis & Antonio Cutanda, 2023. "Labour Supply Responses to Income Tax Changes in Spain," Hacienda Pública Española / Review of Public Economics, IEF, vol. 245(2), pages 71-94, June.
    6. Christian Bredemeier & Jan Gravert & Falko Juessen, 2019. "Estimating Labor Supply Elasticities with Joint Borrowing Constraints of Couples," Journal of Labor Economics, University of Chicago Press, vol. 37(4), pages 1215-1265.
    7. Thoresen, Thor O. & Vattø, Trine E., 2015. "Validation of the discrete choice labor supply model by methods of the new tax responsiveness literature," Labour Economics, Elsevier, vol. 37(C), pages 38-53.
    8. Julie L. Hotchkiss & Robert E. Moore & Fernando Rios-Avila, 2017. "Family Welfare and the Cost of Unemployment," FRB Atlanta Working Paper 2017-7, Federal Reserve Bank of Atlanta.
    9. Mario Alloza, 2021. "The impact of taxes on income mobility," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(4), pages 794-854, August.
    10. Antonio Cutanda & Juan A. Sanchis-Llopis, 2021. "Joint estimation of intertemporal labor and consumption decisions: evidence from Spanish households headed by working men," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 11(4), pages 611-629, December.
    11. Anil Kumar, 2012. "Nonparametric estimation of the impact of taxes on female labor supply," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 27(3), pages 415-439, April.
    12. Luisa Fuster & Ayşe İmrohoroğlu & Selahattin İmrohoroğlu, 2007. "Elimination of Social Security in a Dynastic Framework," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(1), pages 113-145.
    13. Anil Kumar, 2004. "Taxes, Deadweight Loss and Intertemporal Female Labor Supply: Evidence from Panel Data," Center for Policy Research Working Papers 61, Center for Policy Research, Maxwell School, Syracuse University.
    14. John K. Dagsvik & Zhiyang Jia, 2014. "Labor supply as a discrete choice among latent jobs: Unobserved heterogeneity and identification," Discussion Papers 786, Statistics Norway, Research Department.
    15. Julie L. Hotchkiss & Robert E. Moore & Fernando Rios-Avila, 2021. "Impact of the 2017 Tax Cuts and Jobs Act on Labor Supply and Welfare of Married Households," FRB Atlanta Working Paper 2021-18, Federal Reserve Bank of Atlanta.
    16. Kumar, Anil, 2008. "Labor supply, deadweight loss and tax reform act of 1986: A nonparametric evaluation using panel data," Journal of Public Economics, Elsevier, vol. 92(1-2), pages 236-253, February.

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