Tax Elasticity of Labor Earnings for Older Individuals
This paper studies the impact of income and payroll taxes on intensive and extensive labor supply decisions for workers ages 55-74 using the Health and Retirement Study. The literature provides little guidance about the responsiveness of this population to tax incentives, though the tax code is potentially an important mechanism that can alter retirement incentives. We model labor force participation decisions and labor earnings as functions of taxes, and we use the intensive margin to inform estimation of the extensive margin equation. Our method accounts for selection into labor force participation with a plausibly exogenous shock to employment. We use the results of our intensive labor supply estimation to predict the after-tax labor earnings of every person in our sample, including those that do not work. This method allows us to generate consistent estimates of the impact of taxes on employment and retirement. We find large compensated elasticities on the intensive margin. These results are imprecise, but they are statistically significant for women. On the extensive margin, we find significant effects on labor force participation and, for men, retirement decisions. Our estimates suggest that an age-targeted tax reform that eliminates payroll taxes for older workers would decrease the percentage of workers dropping out of the labor force by 1 percentage point, a 4% decrease.
|Date of creation:||Sep 2012|
|Contact details of provider:|| Postal: P.O. Box 1248, Ann Arbor, MI 48104|
Phone: (734) 615-0422
Fax: (734) 647-4575
Web page: http://www.mrrc.isr.umich.edu/publications/papers/
More information through EDIRC
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.:
- Bruce D. Meyer & Dan T. Rosenbaum, 1999.
"Welfare, the Earned Income Tax Credit, and the Labor Supply of Single Mothers,"
NBER Working Papers
7363, National Bureau of Economic Research, Inc.
- Bruce D. Meyer & Dan T. Rosenbaum, 2001. "Welfare, the Earned Income Tax Credit, and the Labor Supply of Single Mothers," The Quarterly Journal of Economics, Oxford University Press, vol. 116(3), pages 1063-1114.
- Bruce D. Meyer & Dan T. Rosenbaum, 1998. "Welfare, the Earned Income Tax Credit, and the Labor Supply of Single Mothers," JCPR Working Papers 32, Northwestern University/University of Chicago Joint Center for Poverty Research.
- Singleton, Perry, 2011. "The Effect of Taxes on Taxable Earnings: Evidence From the 2001 and Related U.S. Federal Tax Acts," National Tax Journal, National Tax Association, vol. 64(2), pages 323-351, June.
- Hui Shan & David Powell, 2010.
"Income taxes, compensating differentials, and occupational choice: how taxes distort the wage-amenity decision,"
Finance and Economics Discussion Series
2010-04, Board of Governors of the Federal Reserve System (U.S.).
- 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 224-247, February.
- David Powell & Hui Shan, 2010. "Income Taxes, Compensating Differentials, and Occupational Choice: How Taxes Distort the Wage-Amenity Decision," Working Papers 705-1, RAND Corporation.
- Schafgans, Marcia M.A. & Zinde-Walsh, Victoria, 2002.
"On Intercept Estimation In The Sample Selection Model,"
Cambridge University Press, vol. 18(01), pages 40-50, February.
- Marcia M. A. Schafgans & Victoria Zinde-Walsh, 2000. "On intercept estimation in the sample selection model," LSE Research Online Documents on Economics 6868, London School of Economics and Political Science, LSE Library.
- Heckman, James J, 1990. "Varieties of Selection Bias," American Economic Review, American Economic Association, vol. 80(2), pages 313-318, May.
- Emmanuel Saez & Joel B. Slemrod & Seth H. Giertz, 2009.
"The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review,"
NBER Working Papers
15012, National Bureau of Economic Research, Inc.
- Emmanuel Saez & Joel Slemrod & Seth H. Giertz, 2012. "The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 50(1), pages 3-50, March.
- Song, Jae G. & Manchester, Joyce, 2007. "New evidence on earnings and benefit claims following changes in the retirement earnings test in 2000," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 669-700, April.
- Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
- Subbotin, Viktor, 2007. "Asymptotic and bootstrap properties of rank regressions," MPRA Paper 9030, University Library of Munich, Germany, revised 20 Mar 2008.
- Laitner, John & Silverman, Dan, 2012. "Consumption, retirement and social security: Evaluating the efficiency of reform that encourages longer careers," Journal of Public Economics, Elsevier, vol. 96(7-8), pages 615-634.
- Francine D. Blau & Lawrence M. Kahn, 2007. "Changes in the Labor Supply Behavior of Married Women: 1980â€“2000," Journal of Labor Economics, University of Chicago Press, vol. 25, pages 393-438.
When requesting a correction, please mention this item's handle: RePEc:mrr:papers:wp272. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (MRRC Administrator)
If references are entirely missing, you can add them using this form.