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An Intertemporal Analysis of Taxation and Work Disincentives: An Analysis of the Denver Income Maintenance Experiment

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  • Thomas E. MaCurdy
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    Abstract

    This paper formulates an empirical model of consumption and labor supply that explicitly incorporates income taxes in a multiperiod setting. This model relies on few assumptions and provides a robust framework for estimating parameters needed to predict the response of consumption and hours of work to changes in a consumer's lifetime resource constraints. The empirical specifications developed here apply when a consumer is uncertain about future prices, taxes, income, and tastes, and the estimation of these specifications does not require explicit modeling of either a consumer's expectations or the history of a consumer. The empirical model accommodates both progressive and regressive tax schemes. Estimation of the model involves no complicated procedures; a full set of parameter estimates can be obtained with the application of standard two-stage least squares techniques. The final sect ion of the paper estimates a particular specification of the model using data from the Denver Income Maintenance Experiment. The empirical formulations proposed here are particularly well suited to deal with the kinds of tax schemes used in NIT experiments and the limited duration of those programs.

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    File URL: http://www.nber.org/papers/w0624.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0624.

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    Date of creation: Jan 1981
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    Handle: RePEc:nbr:nberwo:0624

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    1. Hausman, Jerry A & Wise, David A, 1977. "Social Experimentation, Truncated Distributions, and Efficient Estimation," Econometrica, Econometric Society, vol. 45(4), pages 919-38, May.
    2. R. E. Hall, 1970. "Wages, Income and Hours of Work in the U. S. Labor Force," Working papers 62, Massachusetts Institute of Technology (MIT), Department of Economics.
    3. Amemiya, Takeshi, 1977. "The Maximum Likelihood and the Nonlinear Three-Stage Least Squares Estimator in the General Nonlinear Simultaneous Equation Model," Econometrica, Econometric Society, vol. 45(4), pages 955-68, May.
    4. Rosen, Harvey S, 1976. "Taxes in a Labor Supply Model with Joint Wage-Hours Determination," Econometrica, Econometric Society, vol. 44(3), pages 485-507, May.
    5. Johnson, Terry R & Pencavel, John H, 1984. "Dynamic Hours of Work Functions for Husbands, Wives, and Single Females," Econometrica, Econometric Society, vol. 52(2), pages 363-89, March.
    6. Keeley, Michael C, et al, 1978. "The Estimation of Labor Supply Models Using Experimental Data," American Economic Review, American Economic Association, vol. 68(5), pages 873-87, December.
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