Aaronson, Daniel, and Eric French. 2009. “The Effects of Progressive Taxation on Labor Supply when Hours and Wages Are Jointly Determined.” Journal of Human Resources 44(2): 386–408.
This paper extends a standard intertemporal labor supply model to account for progressive taxation as well as the joint determination of hourly wages and hours worked. We show that these two factors can have implications for both estimating labor supply elasticities as well as for using these elasticities in tax analysis. Failure to account for wage-hours ties and progressive taxation may cause the hours response to marginal tax rate changes to be understated by 5 to 30 percent for men.
Dan Aaronson and Eric French are senior researchers in economic research at the Federal Reserve Bank of Chicago. The data used in this article can be obtained beginning October 2009 through September 2012 from Dan Aaronson at daaronson@frbchi.org or Eric French at efrench@frbchi.org. The views of the authors do not necessarily reflect the Federal Reserve Bank of Chicago or the Federal Reserve System.