This paper evaluates the effects of the 1986 Tax Reform Act on household labor supply and savings. It describes the tax bill's effects on incentives to work and to save, and uses recent econometric estimates of labor supply and savings elasticities to describe the reform's impact on household behavior. Two factors lead us to conclude that the new law will have small aggregate effects. First, most households experience only small changes in their marginal tax rates. Forty-one percent of the taxpaying population will face marginal tax rates as high, or higher, under the new law as under the previous tax code. Only eleven percent of taxpayers receive marginal tax rate reductions of ten percentage points or more. Second, plausible estimates of both the labor supply and savings elasticities suggest that even for those households that receive rate reductions, behavioral changes will be small. Our analysis suggests that the tax reform will increase labor supply by about one percent, and slightly reduce private savings.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
2120.
Length: Date of creation: Feb 1988 Date of revision: Handle: RePEc:nbr:nberwo:2120
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Hausman, Jerry A., 1985.
"Taxes and labor supply,"
Handbook of Public Economics,
in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 4, pages 213-263
Elsevier.
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