TAXES IN A LABOR SUPPLY MODEL WITH JOINT WAGE-HOURS DETERMINATION

PAYROLL AND PROGRESSIVE INCOME taxes play an enormous role in the American fiscal system. It is therefore of some importance to know the extent to which they influence work incentives. The purpose of this study is to present some econometric evidence on the effects of taxes on married women, a group of growing importance in the American labor force.2 A testable model of labor supply is developed which permits statistical estimation of a "coefficient of tax perception." Unlike previous models of labor supply, it allows for the possibility that the wage may depend on the number of hours worked. Contrary to much of the literature, the results of this paper strongly suggest that marginal tax rates do have an important impact on labor force behavior. This section reviews briefly the past thought on this problem. Section 2 develops a model to explain work decisions when an individual faces a whole set of wagehour combinations, rather than a given wage independent of the number of hours he works. In Section 3 this model is modified to permit an explicit test of whether or not taxes affect individuals' labor supply decisions. Estimation problems are discussed at length, and the empirical results are presented. A concluding section contains a summary and suggestions for future research.

[1]  F. Nelson,et al.  ESTIMATION OF THE TWO-LIMIT PROBIT REGRESSION MODEL , 1975 .

[2]  Takeshi Amemiya,et al.  Multivariate Regression and Simultaneous Equation Models when the Dependent Variables Are Truncated Normal , 1974 .

[3]  J. Heckman.  Shadow prices, market wages, and labor supply , 1974 .

[4]  S. Rosen.  Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition , 1974, Journal of Political Economy.

[5]  Takeshi Amemiya,et al.  Regression Analysis when the Dependent Variable is Truncated Normal , 1973 .

[6]  Yoram Barzel,et al.  The Determination of Daily Hours and Wages , 1973 .

[7]  Reuben Gronau,et al.  The Intrafamily Allocation of Time: The Value of the Housewives' Time , 1973 .

[8]  Y. Weiss.  On the Optimal Lifetime Pattern of Labour Supply , 1972 .

[9]  W. Stanbury,et al.  Income Taxes and Incentives to Work: Some Additional Empirical Evidence , 1971 .

[10]  R. Hall.  Wages, income and hours of work in the U.S. labor force, , 1970 .

[11]  F. Fisher,et al.  The Identification Problem in Econometrics. , 1967 .

[12]  W. Bowen,et al.  The Economics of Labor Force Participation. , 1969 .

[13]  G. Lewis.  Interés del Empleador en las Horas de Trabajo del Empleado , 1969 .

[14]  M. Kosters.  EFFECTS OF AN INCOME TAX ON LABOR SUPPLY , 1968 .

[15]  M. Feldstein,et al.  Specification of the Labour Input in the Aggregate Production Function , 1967 .

[16]  G. Cain.  Married women in the labor force , 1966 .

[17]  J. Morgan,et al.  Economic behavior of the affluent , 1966 .

[18]  G. Becker,et al.  A Theory of the Allocation of Time , 1965 .

[19]  Carsten Welinder.  Readings in the Economics of Taxation , 1960 .

[20]  Masazo Okawa,et al.  Richard A. Musgrave, The Theory of Public Finance -A Study in Public Economy, New York, 1959 , 1960 .

[21]  David G. Davies,et al.  The Theory of Public Finance , 1960 .

[22]  J. Tobin.  Estimation of Relationships for Limited Dependent Variables , 1958 .

[23]  G. Cooper.  Taxation and Incentive in Mobilization , 1952 .

[24]  Lionel Robbins.  On the Elasticity of Demand for Income in Terms of Effort , 1930 .