Effect of Personal Income Taxes on Labor Supply Anderson: Incentive Effects of Taxation.
-
Upload
asher-potter -
Category
Documents
-
view
215 -
download
0
Transcript of Effect of Personal Income Taxes on Labor Supply Anderson: Incentive Effects of Taxation.
![Page 1: Effect of Personal Income Taxes on Labor Supply Anderson: Incentive Effects of Taxation.](https://reader036.fdocuments.us/reader036/viewer/2022062519/5697bfbd1a28abf838ca212d/html5/thumbnails/1.jpg)
Effect of Personal Income
Taxes on Labor SupplyAnderson: Incentive Effects of Taxation
![Page 2: Effect of Personal Income Taxes on Labor Supply Anderson: Incentive Effects of Taxation.](https://reader036.fdocuments.us/reader036/viewer/2022062519/5697bfbd1a28abf838ca212d/html5/thumbnails/2.jpg)
2Copyright © by Houghton Mifflin Company. All rights reserved.
Introduction
• The existence of taxes brings with it incentives to change behavior. • In this chapter we examine how taxes provide incentives to change
behavior in three specific ways:• Labor supply• Savings• Tax evasion
![Page 3: Effect of Personal Income Taxes on Labor Supply Anderson: Incentive Effects of Taxation.](https://reader036.fdocuments.us/reader036/viewer/2022062519/5697bfbd1a28abf838ca212d/html5/thumbnails/3.jpg)
Five Principles
1. Raising Adequate Revenue2. Neutrality3. Fairness4. Ease of Administration and Compliance5. Accountability
![Page 4: Effect of Personal Income Taxes on Labor Supply Anderson: Incentive Effects of Taxation.](https://reader036.fdocuments.us/reader036/viewer/2022062519/5697bfbd1a28abf838ca212d/html5/thumbnails/4.jpg)
4Copyright © by Houghton Mifflin Company. All rights reserved.
Taxation and Labor Supply
• Labor-leisure choice problem.
• People value both income and leisure.
• In order to earn income, one must work.
• The problem is to allocate time, a scarce resource, to labor and leisure.
![Page 5: Effect of Personal Income Taxes on Labor Supply Anderson: Incentive Effects of Taxation.](https://reader036.fdocuments.us/reader036/viewer/2022062519/5697bfbd1a28abf838ca212d/html5/thumbnails/5.jpg)
5Copyright © by Houghton Mifflin Company. All rights reserved.
Labor-Leisure Choice• Time endowment T.
• Allocate time to leisure activity l or work activity T - l.
• Work pays wage of w per hour.
• Wage income is y = w x (T - l).
• Optimal combination of labor and leisure is that where the MRS between income and leisure equals the wage.
![Page 6: Effect of Personal Income Taxes on Labor Supply Anderson: Incentive Effects of Taxation.](https://reader036.fdocuments.us/reader036/viewer/2022062519/5697bfbd1a28abf838ca212d/html5/thumbnails/6.jpg)
6Copyright © by Houghton Mifflin Company. All rights reserved.
Figure 11.1: Labor/Leisure Choice
![Page 7: Effect of Personal Income Taxes on Labor Supply Anderson: Incentive Effects of Taxation.](https://reader036.fdocuments.us/reader036/viewer/2022062519/5697bfbd1a28abf838ca212d/html5/thumbnails/7.jpg)
7Copyright © by Houghton Mifflin Company. All rights reserved.
Figure 11.2: Labor Supply Effects of a Wage Reduction
![Page 8: Effect of Personal Income Taxes on Labor Supply Anderson: Incentive Effects of Taxation.](https://reader036.fdocuments.us/reader036/viewer/2022062519/5697bfbd1a28abf838ca212d/html5/thumbnails/8.jpg)
8Copyright © by Houghton Mifflin Company. All rights reserved.
![Page 9: Effect of Personal Income Taxes on Labor Supply Anderson: Incentive Effects of Taxation.](https://reader036.fdocuments.us/reader036/viewer/2022062519/5697bfbd1a28abf838ca212d/html5/thumbnails/9.jpg)
9Copyright © by Houghton Mifflin Company. All rights reserved.
Figure 11.3: Substitution and Income Effects of a Wage Reduction
![Page 10: Effect of Personal Income Taxes on Labor Supply Anderson: Incentive Effects of Taxation.](https://reader036.fdocuments.us/reader036/viewer/2022062519/5697bfbd1a28abf838ca212d/html5/thumbnails/10.jpg)
10Copyright © by Houghton Mifflin Company. All rights reserved.
Figure 11.4: Effects of a Wage Reduction When the Income Effect Dominates
![Page 11: Effect of Personal Income Taxes on Labor Supply Anderson: Incentive Effects of Taxation.](https://reader036.fdocuments.us/reader036/viewer/2022062519/5697bfbd1a28abf838ca212d/html5/thumbnails/11.jpg)
11Copyright © by Houghton Mifflin Company. All rights reserved.
Figure 11.5: The Laffer Curve
![Page 12: Effect of Personal Income Taxes on Labor Supply Anderson: Incentive Effects of Taxation.](https://reader036.fdocuments.us/reader036/viewer/2022062519/5697bfbd1a28abf838ca212d/html5/thumbnails/12.jpg)
12Copyright © by Houghton Mifflin Company. All rights reserved.
![Page 13: Effect of Personal Income Taxes on Labor Supply Anderson: Incentive Effects of Taxation.](https://reader036.fdocuments.us/reader036/viewer/2022062519/5697bfbd1a28abf838ca212d/html5/thumbnails/13.jpg)
13Copyright © by Houghton Mifflin Company. All rights reserved.