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Heterogeneity in Income Tax Incidence: Are the Wages of Dangerous Jobs More Responsive to Tax Changes than the Wages of Safe Jobs?

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  • David Powell
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    Abstract

    Income taxes distort the relationship between wages and non-taxable amenities. When the marginal tax rate increases, amenities become more valuable as the compensating differential for low-amenity jobs is taxed away. While there is evidence that the provision of amenities responds to taxes, the literature has ignored the consequences for job characteristics which cannot fully-adjust. This paper compares the wage response of dangerous jobs to the wage response of safe jobs. When tax rates increase, we should see the pre-tax compensating differential for on-the-job risk increase. Empirically, this paper finds large differences in the wage response of jobs based on their riskiness.

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    File URL: http://www.rand.org/content/dam/rand/pubs/working_papers/2011/RAND_WR706-1.pdf
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    Bibliographic Info

    Paper provided by RAND Corporation Publications Department in its series Working Papers with number 706-1.

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    Length: 45 pages
    Date of creation: Dec 2010
    Date of revision:
    Handle: RePEc:ran:wpaper:706-1

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    Keywords: income taxes; value of a statistical life; tax incidence; compensating differentials;

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    Cited by:
    1. David Powell & Hui Shan, 2012. "Income Taxes, Compensating Differentials, and Occupational Choice: How Taxes Distort the Wage-Amenity Decision," American Economic Journal: Economic Policy, American Economic Association, vol. 4(1), pages 224-47, February.

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