The effect of taxation on lifecycle labor supply: results from a quasi-experiment

Jane K. Dokko

No 2008-24, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: In predicting the magnitude of the labor supply response to taxation, the standard lifecycle labor supply model distinguishes between unanticipated and anticipated changes in the after-tax return to working. Exploiting age-eligibility rules for claiming a dependent on a tax return facilitates a comparison of the labor supply outcomes of households who are equivalent but for the tax schedule they face. I find that the quasi-random assignment to a tax schedule without an age-eligible dependent corresponds to a decrease in mothers' labor supply by about 40 hours per year and to no discernible effect for fathers. While having an age-ineligible dependent results in a 0.5 percentage point, or 0.3%, average decrease in a household's net-of-tax rate, further analysis of average tax rates suggests that the variation in marginal tax rates does not fully explain mothers' labor supply responses. This finding militates against interpreting this large response as an intertemporal elasticity and subsequently presents a puzzle for the lifecycle labor supply model.

Keywords: Taxation; Labor market (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.federalreserve.gov/pubs/feds/2008/200824/200824abs.html (text/html)
http://www.federalreserve.gov/pubs/feds/2008/200824/200824pap.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2008-24

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().