Working Paper: NBER ID: w12417
Authors: Adam Looney; Monica Singhal
Abstract: We use anticipated changes in tax rates associated with changes in family composition to estimate intertemporal labor supply elasticities and elasticities of taxable income with respect to the net-of-tax wage rate. Changes in the ages of children can affect marginal tax rates through provisions of the tax code that are tied to child age and dependent status. We identify behavioral responses to these tax changes by comparing families who experienced a tax rate change to families who had a similar change in dependents but no resulting tax rate change. A primary advantage of our approach is that these changes can be anticipated, allowing us to estimate substitution effects that are not confounded by life-cycle income effects. We estimate an intertemporal elasticity of family labor earnings of 0.75 for families earning between $35,000 and $85,000 in the Survey of Income and Program Participation (SIPP) and find very similar estimates using the IRS-NBER individual tax panel.
Keywords: Taxation; Labor Supply; Elasticity
JEL Codes: H2; H31; J22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| anticipated tax changes (H26) | intertemporal labor supply (J22) |
| anticipated tax changes (H26) | taxable income (H24) |
| net-of-tax wage rate (J31) | family labor earnings (J31) |
| anticipated tax changes (H26) | substitution effects (D11) |
| anticipated tax changes (H26) | lifecycle wealth effects (D15) |