This paper examines the effect of earnings taxes on the variability of wages over time. We estimate a "hedonic wage locus" which indicates how the market allows individuals to substitute the mean level of the wage for its variability across jobs. Information from this locus is used to estimate the parameters of individuals' indifference curves between the mean and temporal variation of hourly wages. On the basis of these utility function parameters, we predict that lowering the rate of taxation on earnings would on average lead workers to choose jobs with a higher pre-tax mean wage and with greater wage variation.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
1284.
Length: Date of creation: Dec 1988 Date of revision: Handle: RePEc:nbr:nberwo:1284
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