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

  • Duncan, Denvil

    ()

    (Indiana University)

  • Peter, Klara Sabirianova

    ()

    (University of North Carolina, Chapel Hill)

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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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4257.

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Length: 55 pages
Date of creation: Jun 2009
Date of revision:
Handle: RePEc:iza:izadps:dp4257
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  21. Lemieux, Thomas & Fortin, Bernard & Frechette, Pierre, 1994. "The Effect of Taxes on Labor Supply in the Underground Economy," American Economic Review, American Economic Association, vol. 84(1), pages 231-54, March.
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