Loss aversion, labor supply, and income taxation

This article analyzes concerns about market power and inequality in a model with multiple sectors, heterogeneous abilities, endogenous labor supply, and nonlinear income taxation. Proportional markups with no profit dissipation have no effect on the economy, and a policy that reduces a nonproportional markup raises (lowers) welfare when it is higher (lower) than a weighted average of other markups. With proportional (partial or full) profit dissipation, proportional markups are equivalent to a downward shift of the distribution of abilities, and the optimal policy rule with nonproportional markups maximizes consumer plus producer surplus despite concerns for distribution and labor supply distortion. (JEL D43, D61, H21, H23, H24, K21, L13, L40)

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Progressive Income Taxation and Economic Growth with Endogenous Labor Supply and Public Good

European Journal of Economics and Business Studies ◽

10.26417/ejes.v3i1.p238-247 ◽

2015 ◽

Vol 3 (1) ◽

pp. 238

Author(s):

Wei Bin Zhang

Keyword(s):

Economic Growth ◽

Public Sector ◽

Labor Supply ◽

Economic System ◽

Income Taxation ◽

Dynamic Interactions ◽

Endogenous Labor Supply ◽

And Gender ◽

Endogenous Labor ◽

Progressive Income Taxation

This study builds an economic growth model of gender division labor, endogenous labor supply with nonlinear progressive income taxation. The tax income is spent on supplying public goods. The economic system consists of one production sector and one public sector. The public sector is financially supported by tax incomes. The model describes dynamic interactions of growth and gender division of labor with progressive income taxation. We simulate the model to demonstrate existence of equilibrium and motion of the dynamic system. We also examine effects of changes in different parameters on the motion of the economic system.

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Labor supply responses to income tax free and bracket expansions

Journal of Economic Studies ◽

10.1108/jes-03-2021-0128 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Panayiota Lyssiotou ◽

Elena Savva

Keyword(s):

Labor Supply ◽

Income Taxation ◽

Foreign Workers ◽

Tax Rates ◽

Marginal Tax Rate ◽

Men And Women ◽

Content Type ◽

Tax Rate ◽

Marginal Tax Rates ◽

Males And Females

PurposeAn important concern of economic policy analysis is how income taxes affect labor supply since this is crucial in assessing the efficiency costs of taxation and designing labor income taxation. The focus in the literature has been mostly to study the responses of high earners and women. The authors contribute to this literature by focusing more on how middle earners respond to financial incentives and whether the responses are different between men and women.Design/methodology/approachThe authors exploit substantial expansions in the level of individual income exempt from taxation and taxed at a lower marginal tax rate while the schedule of marginal tax rates remained the same. The authors adopt an empirical framework that is similar to Bosch and van der Klaauw (2012) and condition on the effects of other factors, such as inflows of foreign workers that may have affected the wages, participation and working hours of native males and females. The authors also conduct various sensitivity analyses to examine the robustness of the estimates.FindingsThe authors find robust evidence that the tax reforms increased the wages of medium and high educated married males and females significantly. They also had a positive impact on work participation that was more substantial for married women, especially the medium educated. The authors estimate significant positive own wage labor supply elasticities that are small and about the same for men and women when the authors condition on the labor outcome effects of inflows of EU and non-EU foreign workers, which changed the skill distribution of the economy and had a more significant impact on female labor outcomes. Smaller wage labor supply elasticities indicate lower disincentive effects and deadweight losses from the imposition of taxes and have implications on the design of optimal taxation of men and women.Originality/valuePrevious investigations of the labor supply responses of both men and women to a given policy change have been identified mostly by exploiting changes in joint income taxation and marginal tax rates. The authors exploit substantial expansions in the level of individual income exempt from taxation and taxed at a lower marginal tax rate while the schedule of marginal tax rates remained the same. The income effects of these reforms could be limited since the reduced marginal tax rates apply to only part of the income.

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