Labour Supply and Tax Rates in a Many-Person Economy

Firouz Gahvari

Scottish Journal of Political Economy, 1991, vol. 38, issue 4, 343-51

Abstract: This paper questions the validity of the belief held by some "supply side" economists that an income tax cut will have no aggregate income effect and that the aggregate supply-of-labor curve must be upward sloping. It is shown, within the context of a many-person economy, that (1) there will in general be an income effect and (2) it is quite possible for the economywide labor supply curve to be downward sloping. This occurs despite the assumption that government expenditures consist only of income transfer programs. Copyright 1991 by Scottish Economic Society.

Date: 1991
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Scottish Journal of Political Economy is currently edited by Tim Barmby, Andrew Hughes-Hallett and Campbell Leith

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