Income Taxes, Compensating Differentials, and Occupational Choice: How Taxes Distort the Wage-Amenity Decision
The link between taxes and occupational choices is central for understanding the welfare impacts of income taxes. Just as taxes distort the labor-leisure decision, they also distort the wage-amenity decision. Yet, there have been few studies on the full response along this margin. When tax rates increase, workers favor jobs with lower wages and more amenities. The authors introduce a two-step methodology which uses compensating differentials to characterize the tax elasticity of occupational choice. They estimate a significant compensated elasticity of 0.03, implying that a 10% increase in the net-of-tax rate causes workers to change to a 0.3% higher wage job.
|Date of creation:||Dec 2010|
|Date of revision:|
|Contact details of provider:|| Postal: 1776 Main Street, P.O. Box 2138, Santa Monica, California 90407-2138|
Phone: (310) 393-0411, x7359
Web page: http://www.rand.org
More information through EDIRC
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.:
- Gruber, Jon & Saez, Emmanuel, 2002.
"The elasticity of taxable income: evidence and implications,"
Journal of Public Economics,
Elsevier, vol. 84(1), pages 1-32, April.
- Jon Gruber & Emmanuel Saez, 2000. "The Elasticity of Taxable Income: Evidence and Implications," NBER Working Papers 7512, National Bureau of Economic Research, Inc.
- Duncan, Greg J & Stafford, Frank P, 1980. "Do Union Members Receive Compensating Wage Differentials?," American Economic Review, American Economic Association, vol. 70(3), pages 355-71, June.
- David Powell, 2010. "Heterogeneity in Income Tax Incidence: Are the Wages of Dangerous Jobs More Responsive to Tax Changes than the Wages of Safe Jobs?," Working Papers 706-1, RAND Corporation.
- Kostiuk, Peter F, 1990. "Compensating Differentials for Shift Work," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1054-75, October.
- Martin Feldstein, 1995.
"Tax Avoidance and the Deadweight Loss of the Income Tax,"
NBER Working Papers
5055, National Bureau of Economic Research, Inc.
- Martin Feldstein, 1999. "Tax Avoidance And The Deadweight Loss Of The Income Tax," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 674-680, November.
- Eissa, Nada & Hoynes, Hilary Williamson, 2004. "Taxes and the labor market participation of married couples: the earned income tax credit," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1931-1958, August.
- 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.
- David Albouy, 2009.
"The Unequal Geographic Burden of Federal Taxation,"
Journal of Political Economy,
University of Chicago Press, vol. 117(4), pages 635-667, 08.
- Gruber, Jonathan & Lettau, Michael, 2004. "How elastic is the firm's demand for health insurance?," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1273-1293, July.
- Hersch, Joni, 1998. "Compensating Differentials for Gender-Specific Job Injury Risks," American Economic Review, American Economic Association, vol. 88(3), pages 598-627, June.
- Garen, John, 1988. "Compensating Wage Differentials and the Endogeneity of Job Riskiness," The Review of Economics and Statistics, MIT Press, vol. 70(1), pages 9-16, February.
- Currie, Janet & Gruber, Jonathan, 1996. "Saving Babies: The Efficacy and Cost of Recent Changes in the Medicaid Eligibility of Pregnant Women," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1263-96, December.
This item is featured on the following reading lists or Wikipedia pages:
When requesting a correction, please mention this item's handle: RePEc:ran:wpaper:705-1. 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: (Benson Wong)
If references are entirely missing, you can add them using this form.