Tax Rates and Labor Supply in Fiscal Equilibrium

Arthur Snow and Ronald Warren

Economic Inquiry, 1989, vol. 27, issue 3, 511-20

Abstract: A central tenet of supply-side economics is that a balanced-budget reduction in the marginal tax rate on wage income increases aggregate labor supply. In contrast, the orthodox Keynesian analysis concludes that the relationship between tax rates and the economy-wide supply of labor is theoretically ambiguous. The authors' analysis of a general model reveals that these two propositions are associated, respectively, with the special assumptions of "compensated independence" and "ordinary independence" between leisure and public speaking. Copyright 1989 by Oxford University Press.

Date: 1989
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