Labour Supply and the Incidence of Income Tax on Wages
AbstractIn the simple framework of a static model for equilibrium wages and labour supplies, we show that the incidence of income tax on equilibrium wages can be measured independently from the individual labour supply elasticity. This extends recent work by Blundell, Duncan and Meghir (1998) and Eissa and Liebman (1996), who estimate labour supply elasticities,and Gruber (1997), who estimates tax incidence on earnings. Our measurements are based on a large multi-level longitudinal data set of Danish private sector establishments. We find strong evidence for partial shifting of the burden of income tax from worker to employer. Higher marginal tax rates are associated with increases in gross wages and earnings. A traditional estimate of the elasticity of labour supply with respect to the net wage, which assumes no shifting of the burden of income tax, is found to overstate incentive effects by a factor of two.
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Bibliographic InfoPaper provided by Centre for Labour Market and Social Research, Danmark- in its series Papers with number 99-01.
Length: 24 pages
Date of creation: 1999
Date of revision:
Contact details of provider:
Postal: Danmark; Centre for Labour Market and Social Research. Science Park Aarhus Wieds Vej 10C, 8000 Aarhus C, Danmark
Phone: +45 8942 2350
Fax: +45 8942 2365
Web page: http://www.cls.dk/
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LABOUR SUPPLY ; TAXATION ; WAGES;
Other versions of this item:
- Paul Bingley & Gauthier Lanot, 1998. "Labour Supply and the Incidence of Income Tax on Wages," Keele Department of Economics Discussion Papers (1995-2001) 98/13, Department of Economics, Keele University, revised Nov 1999.
- H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
- J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
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- Ghazala Azmat, 2006. "The Incidence of an Earned Income Tax Credit: Evaluating the Impact on Wages in the UK," CEP Discussion Papers dp0724, Centre for Economic Performance, LSE.
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