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The Poverty Trap and the Laffer Curve: What Can the GHS Tell Us?

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  • Ashton, Paul
  • Minford, Patrick

Abstract

Budget constraints are drawn up for annual hours and net pay, typically composed of two linear segments: 'benefit-constrained', where extra work forfeits benefit and 'normal', where extra work is subject to the standard marginal tax rate. There are additional linear segments for those on upper tax rates. By ordering males according to the ratio of their maximum net earning power to that when totally unemployed, we establish the appropriate cut-off point for the poverty trap and upper rate segments, from which we estimate labor supply responses to slope and intercept variables. The results suggest high substitution elasticities for those who experienced unemployment during the previous year and those on higher incomes; for average employed men the elasticity was quite l.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 275.

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Date of creation: Dec 1988
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Handle: RePEc:cpr:ceprdp:275

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Keywords: Labour Supply; Poverty; Tax Rates; Unemployment;

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Cited by:
  1. Bean, Charles R & Symons, James, 1989. "Ten Years of Mrs. T," CEPR Discussion Papers 316, C.E.P.R. Discussion Papers.
    • Charles Bean & James Symons, 1989. "Ten Years of Mrs. T," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 13-72 National Bureau of Economic Research, Inc.
  2. Ira N. Gang & Amal Sanyal & Omkar Goswami, 1998. "Corruption, Tax Evasion and the Laffer Curve," Departmental Working Papers 199604, Rutgers University, Department of Economics.

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