Working Paper: NBER ID: w1271
Authors: Jerry Hausman; Paul Ruud
Abstract: Over the period 1960 - 1983 the proportion of federal tax revenue raised by taxation of labor supply has risen from 57-77 percent. In this paper, we specify and estimate a model of family labor supply which treats both federal and state taxation. Husbands and wives labor supply are treated jointly rather than in aseparate manner as in previous research. A method to calculate the virtual wage for nonworking spouses is used within a utility maximizing framework to treat correctly the joint family labor supply decision. Joint family efforts are found to be important. The efficiency cost (deadweight loss) of labor taxation is estimated to be 29.6% of tax revenue raised. The effect of the new 10% deduction to ease the marriage tax for working spouses leads to a prediction of 3.8% increase in wives labor supply and a .9% decrease in husbands labor supply.Overall taxes paid are predicted to decrease by 3.4%.
Keywords: Labor Supply; Taxation; Family Economics
JEL Codes: J22; H24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Taxation (H20) | Labor Supply of Husbands (J22) |
| Taxation (H20) | Labor Supply of Wives (J29) |
| Labor Supply of Wives (J22) | Taxes Paid (H29) |
| Labor Supply of Husbands (J22) | Taxes Paid (H29) |
| Taxation (H20) | Efficiency Cost of Labor Taxation (H31) |