Notes on "Labour Supply and Taxes" (Costas Meghir and David Philips)

Labour supply and taxes

Costas Meghir and David Philips

Publisher: Institute for Fiscal Studies (03/2008)

Identifier: Kttp://discovery.ucl.ac.uk/14942/

“an overview of the voluminous literature relating tax and the supply of effort that has developed since the Meade report on the UK tax system 30 years ago, with a focus on presenting the empirical consensus on how taxes and benefits affect incentives”

“our conclusion is that hours of work are relatively inelastic for men, but are a little more responsive for married women and lone mothers. On the other hand, participation is quite sensitive to taxation and benefits for women. Within this paper we present new estimates form a discrete participation model for both married and single men based on the numerous reforms over the past two decades in the UK. We find that the participation of low education men is somewhat more responsive to incentives than previously thought. For men with high levels of education, participation is virtually unresponsive; here the literature on taxable income suggests that these may be significant welfare costs of taxation, although which much of this seems to be a result of shifting income and consumption to non-taxable forms as opposed to actual reductions in work effort."

U: non-labor income (unrelated to the work decision of the person)

W: marginal wage rate

Z: a collection of background and family characteristics

A1-A2's tax rate: r1

A2-A3's tax rate: r2

A3 above tax rate: r3

r3>r2>r1