Does labour supply respond to a flat tax?
We exploit the exogenous change in marginal tax rates created by the Russian flat tax reform of 2001 to identify the effect of taxes on the labour supply of men and women. We apply a weighted difference-in-difference regression approach and instrumental variables to estimate labour supply functions using a panel dataset. The mean regression results indicate that the tax reform led to a statistically significant increase in hours of work for men but had no effect on work hours for women. However, we find a positive response to tax changes in both tails of the female work hour distribution. We also find that the reform increased the probability of finding a job among both men and women. Despite significant variation in individual responses, the aggregate labour supply elasticities are trivial. This suggests that reform-induced changes in labour supply are an unlikely explanation for the amplified personal income tax revenues that followed the reform. Copyright (c) 2010 The Authors. Journal compilation (c) 2010 The European Bank for Reconstruction and Development.
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Volume (Year): 18 (2010)
Issue (Month): 2 (04)
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