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| Author: | Sillamaa, M. A. |
| Title: | How work effort responds to wage taxation: A non-linear versus a linear tax experiment |
| Journal: | Journal of Economic Behavior and Organization
1999 : JUN, VOL. 39:2, p. 219-233 |
| Index terms: | Pay Employees Taxation Labour supply |
| Language: | eng |
| Abstract: | This is one of a series of experiments by the author testing predictions of the labor supply model that comes from the theory of single-period, single-person utility maximization, where utility is a quasi-concave function of consumption and leisure, and where consumption is assumed a normal good. This paper studies how people adjust their work effort in response to a gross wage rate change under a non-linear tax system in comparison to a linear tax system. The linear tax system is chosen as the Hausman equivalent of the non-linear system at the starting wage rate. The prediction is that work effort will be higher under the linear tax system after the gross wage rate change. This experiment supports the theorem. The implication is that tax flattening will yield more labor and possibly more tax revenues as wage rates rise. |
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