ESTIMATING INTENSIVE AND EXTENSIVE TAX RESPONSIVENESS

Abby Alpert and David Powell

Economic Inquiry, 2020, vol. 58, issue 4, 1855-1873

Abstract: Influential literatures have exploited tax policy changes to estimate the effects of income taxes on either intensive or extensive margin decisions. We extend this quasi‐experimental approach to jointly estimate intensive and extensive margin tax elasticities to address selection issues that have hindered consistent estimation of labor supply effects. The extensive margin equation provides a way to control for selection in the intensive margin equation while consistent estimation of the intensive margin provides estimates of after‐tax returns to working for nonworkers, a necessary input to study extensive behavioral responses. We apply this approach to study the tax responsiveness of older workers. (JEL C33, H24, J20, J26)

Date: 2020
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