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Does Labor Supply Respond to a Flat Tax? Evidence from the Russian Tax Reform

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Abstract

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 labor supply of males and females. We apply the weighted difference-in-difference regression approach and instrumental variables to the labor supply function estimated on individual panel data. The mean regression results indicate that the tax reform led to a statistically significant increase in male hours of work but had no effect on that of females. However, we find a positive response to tax changes at both tails of the female hour distribution. We also find that the reform increased the probability of finding a job among both males and females. Despite significant variation in individual responses, the aggregate labor supply elasticities are trivial and suggest that reform-induced changes in labor supply were an unlikely explanation for the amplified personal income tax revenues that followed the reform.

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  • Denvil Duncan & Klara Sabirianova Peter, 2009. "Does Labor Supply Respond to a Flat Tax? Evidence from the Russian Tax Reform," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0906, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  • Handle: RePEc:ays:ispwps:paper0906
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    Cited by:

    1. Kalíšková, Klára, 2014. "Labor supply consequences of family taxation: Evidence from the Czech Republic," Labour Economics, Elsevier, vol. 30(C), pages 234-244.
    2. Slonimczyk, Fabian, 2011. "The effect of taxation on informal employment: evidence from the Russian flat tax reform," MPRA Paper 35404, University Library of Munich, Germany.
    3. Klara Kaliskova, 2013. "Family Taxation and the Female Labor Supply: Evidence from the Czech Republic," CERGE-EI Working Papers wp496, The Center for Economic Research and Graduate Education - Economics Institute, Prague.

    More about this item

    Keywords

    labor supply; personal income tax; flat tax; labor supply elasticity; difference-in-difference; regression discontinuity; wage endogeneity; employment participation; Russia; transition.;

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • P2 - Economic Systems - - Socialist Systems and Transition Economies

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