The Impact of Income Taxation on the Ratio between Reservation and Market Wages and the Incentives for Labour Supply

Marco Caliendo, Ludovica Gambaro and Peter Haan

No 670, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: This paper extends previous research about the determinants of reservation wages by analysing the effect of progressive income taxation on the ratio between reservation and net market wages. Based on micro data for Germany (SOEP) we show that joint income taxation in Germany which discriminates by marital status, has a strong and highly significant impact on the reservation/market wage ratio. Relative to single filers, this leads to strong negative labour supply incentives for secondary earners and to positive incentives for first earners in married couples.

Keywords: Reservation/market wage ratio; income taxation; labour supply; microsimulation (search for similar items in EconPapers)
JEL-codes: H24 H31 J22 (search for similar items in EconPapers)
Pages: 15 p.
Date: 2007
New Economics Papers: this item is included in nep-lab and nep-pbe
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https://www.diw.de/documents/publikationen/73/diw_01.c.55799.de/dp670.pdf (application/pdf)

Related works:
Journal Article: The impact of income taxation on the ratio between reservation and market wages and the incentives for labour supply (2009)
Working Paper: The Impact of Income Taxation on the Ratio between Reservation and Market Wages and the Incentives for Labour Supply (2007)
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