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Are Workers “Ricardian†? Estimating the Labor Supply Effects of State Fiscal Policy

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  • Karen Smith Conway

    (University of New Hampshire)

Abstract

This research investigates whether workers perceive current deficits as implied future taxes (la Ricardian equivalence) and therefore consider current deficits when formulating their expectations about future net wages. A life cycle model of labor supply that permits workers to be aware of the government's budget constraint over time is constructed and then estimated using microlevel data and state fiscal policy variables. The results reveal that state government budget deficits tend to increase male labor supply more (or decrease it less) the more the state relies on individual income taxes. Such an effect is what would be predicted with “Ricardian†workers.

Suggested Citation

  • Karen Smith Conway, 1999. "Are Workers “Ricardian†? Estimating the Labor Supply Effects of State Fiscal Policy," Public Finance Review, , vol. 27(2), pages 160-193, March.
    • Handle: RePEc:sae:pubfin:v:27:y:1999:i:2:p:160-193
    DOI: 10.1177/109114219902700203
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    References listed on IDEAS

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