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Taxation and Aggregate Factor Supply: Preliminary Estimates

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  • Michael J. Boskin
  • Lawrence J. Lau
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    Abstract

    This paper extends the analysis of aggregate factor supply to a model which accounts simultaneously for the consumption/saving and labor/leisure choices. A translog utility maximization model is used to derive the set of consumption and leisure demand equations; these in turn are estimated on U.S. aggregate time series data. The empirical results are striking: we estimate (quite precisely) substantial own and cross price elasticities for current and future consumption and labor supply. The implied interest elasticity of saving is approximately 0.4.The results suggest that previous studies of labor supply and/or consumption which have ignored cross-price effects are mis-specified. We also strongly reject the hypothesis that implicit social security had no effect on factor supply.

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    File URL: http://www.nber.org/papers/w0221.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0221.

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    Date of creation: Dec 1977
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    Publication status: published as Boskin, Michael J. and Lawrence J. Lau. "Taxation and Aggregate Factor Supply: Preliminary Estimates." U.S. Treasury Compendium of Tax Research, 1978.
    Handle: RePEc:nbr:nberwo:0221

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    1. Rosen, Harvey S, 1976. "Tax Illusion and the Labor Supply of Married Women," The Review of Economics and Statistics, MIT Press, vol. 58(2), pages 167-72, May.
    2. Stiglitz, Joseph E & Boskin, Michael J, 1977. "Some Lessons from the New Public Finance," American Economic Review, American Economic Association, vol. 67(1), pages 295-301, February.
    3. Heckman, James J, 1974. "Shadow Prices, Market Wages, and Labor Supply," Econometrica, Econometric Society, vol. 42(4), pages 679-94, July.
    4. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
    5. Martin Feldstein & Jeffrey B. Liebman, 2001. "Social Security," NBER Working Papers 8451, National Bureau of Economic Research, Inc.
      • Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324 Elsevier.
    6. Sandmo, Agnar & Dreze, Jacques H, 1971. "Discount Rates for Public Investment in Closed and Open Economies," Economica, London School of Economics and Political Science, vol. 38(152), pages 395-412, November.
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