A General Model of the Behavioral Response to Taxation
AbstractThis paper generalizes the standard model of how taxes affect the labor-leisure choice by allowing individuals to change both their labor supply and avoidance effort in response to tax changes. Doing so reveals that the income and substitution effect of taxes depend on both preferences and the avoidance technology. Econometric analysis will not in general allow one to separately identify the two influences, unless one can specify observable determinants of the cost of avoidance. The effective marginal tax rate on working must be modified by the addition of an avoidance-facilitating effect, which measures how the cost of avoidance changes with higher income. This model provides a conceptual structure for evaluating to what extent, and in what situations, the opportunities for tax avoidance mitigate the real substitution response to taxation. Copyright Kluwer Academic Publishers 2001
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Bibliographic InfoArticle provided by Springer in its journal International Tax and Public Finance.
Volume (Year): 8 (2001)
Issue (Month): 2 (March)
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Web page: http://www.springerlink.com/link.asp?id=102915
taxation; labor supply; avoidance; evasion; tax reform;
Other versions of this item:
- Joel Slemrod, 1998. "A General Model of the Behavioral Response to Taxation," NBER Working Papers 6582, National Bureau of Economic Research, Inc.
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
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