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The Effect of Income Taxation on Labor Supply when Deductions Are Endogenous

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  • Triest, Robert K

Abstract

This paper extends the standard static model of labor supply and taxation to the case where people are able to legally avoid taxes through the use of itemized deductions. Tax deductible expenditures are treated as a Hicksian composite good with a price (for those who decide to itemize) proportional to one minus the marginal tax rate. Estimation of the commonly used linear labor supply model (extended to incorporate the additional composite good) on a cross-section of prime aged married men suggests that tax deductible consumption is an uncompensated substitute for leisure (and complement with labor). The impact of taxes through the relative price of deductible expenditures appears to be much stronger than through the net wage. Copyright 1992 by MIT Press.

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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics & Statistics.

Volume (Year): 74 (1992)
Issue (Month): 1 (February)
Pages: 91-99

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Handle: RePEc:tpr:restat:v:74:y:1992:i:1:p:91-99

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Web page: http://mitpress.mit.edu/journals/

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Cited by:
  1. Triest, Robert K., 1998. "Econometric Issues in Estimating the Behavioral Response to Taxation: A Nontechnical Introduction," National Tax Journal, National Tax Association, National Tax Association, vol. 51(n. 4), pages 761-72, December.
  2. Showalter, Mark H. & Thurston, Norman K., 1997. "Taxes and labor supply of high-income physicians," Journal of Public Economics, Elsevier, Elsevier, vol. 66(1), pages 73-97, October.
  3. Agell, Jonas & Persson, Mats, 1998. "Tax Arbitrage and Labor Supply," Seminar Papers, Stockholm University, Institute for International Economic Studies 647, Stockholm University, Institute for International Economic Studies.
  4. Carlin, Paul S. & Flood, Lennart, 1997. "Do children affect the labor supply of Swedish men? Time diary vs. survey data," Labour Economics, Elsevier, Elsevier, vol. 4(2), pages 167-183, June.
  5. Anil Kumar, 2012. "Nonparametric estimation of the impact of taxes on female labor supply," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 27(3), pages 415-439, 04.
  6. Agell, Jonas & Persson, Mats & Sacklén, Hans, 1999. "Labour Supply Prediction When Tax Avoidance Matters," Seminar Papers, Stockholm University, Institute for International Economic Studies 679, Stockholm University, Institute for International Economic Studies.
  7. Kumar, Anil, 2008. "Labor supply, deadweight loss and tax reform act of 1986: A nonparametric evaluation using panel data," Journal of Public Economics, Elsevier, Elsevier, vol. 92(1-2), pages 236-253, February.
  8. Martin Feldstein, 1999. "Tax Avoidance And The Deadweight Loss Of The Income Tax," The Review of Economics and Statistics, MIT Press, MIT Press, vol. 81(4), pages 674-680, November.
  9. Robert A. Moffitt & Mark Wilhelm, 1998. "Taxation and the Labor Supply: Decisions of the Affluent," NBER Working Papers 6621, National Bureau of Economic Research, Inc.
  10. Atallah, Gamal, 1998. "Les impôts sur le revenu et l’offre de travail des femmes mariées : une revue de la littérature," L'Actualité Economique, Société Canadienne de Science Economique, Société Canadienne de Science Economique, vol. 74(1), pages 95-128, mars.
  11. Adriana Kugler, 2011. "Is there an Anti-labor Bias of Taxes? A Survey of the Evidence from Latin America and Around the World," Research Department Publications, Inter-American Development Bank, Research Department 4746, Inter-American Development Bank, Research Department.
  12. Agell, Jonas & Persson, Mats & Sacklen, Hans, 2004. "The effects of tax reform on labor supply, tax revenue and welfare when tax avoidance matters," European Journal of Political Economy, Elsevier, Elsevier, vol. 20(4), pages 963-982, November.
  13. Robert Gagné & Jean-François Nadeau & François Vaillancourt, 2000. "Taxpayers' Response to Tax Rate Changes: A Canadian Panel Study," CIRANO Working Papers, CIRANO 2000s-59, CIRANO.
  14. Agell, Jonas & Persson, Mats & Sacklén, Hans, 1999. "Labor Supply When Tax Avoidance Matters," Working Paper Series, Trade Union Institute for Economic Research 157, Trade Union Institute for Economic Research.

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