Optimal Income Taxation: Mirrlees Meets Ramsey
In: Journal of political economy, Volume 129, Issue 11, p. 3141-3184
ISSN: 1537-534X
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In: Journal of political economy, Volume 129, Issue 11, p. 3141-3184
ISSN: 1537-534X
In: CEPR Discussion Paper No. DP10380
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Working paper
In: Journal of monetary economics, Volume 130, p. 68-85
In: Journal of monetary economics, Volume 124, p. 123-139
In: CESifo Working Paper No. 8935
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In: CESifo Working Paper No. 8251
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In: SAFE Working Paper No. 267, February 2020
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Why are average hours worked per adult lower in rich countries than in poor countries? We consider two natural explanations: income effects in preferences, in which leisure becomes more valuable when income rises, and distortionary tax systems, which are more prevalent in richer countries. To assess the importance of these two forces, we build a simple model of labor supply by heterogeneous individuals and calibrate it to match international data on labor income taxation, government transfers relative to GDP, and hours worked per adult. The model predicts that income effects are the main driving force behind the decline of average hours worked with GDP per capita. We reach a similar conclusion in an extended model that matches cross-country patterns of labor supply along the extensive and intensive margins and of the prevalence of subsistence self-employment.
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Why are average hours worked per adult lower in rich countries than in poor countries? We consider two natural explanations: income effects in preferences, in which leisure becomes more valuable when income rises, and distortionary tax systems, which are more prevalent in richer countries. To assess the importance of these two forces, we build a simple model of labor supply by heterogeneous individuals and calibrate it to match international data on labor income taxation, government transfers relative to GDP, and hours worked per adult. The model predicts that income effects are the main driving force behind the decline of average hours worked with GDP per capita. We reach a similar conclusion in an extended model that matches cross-country patterns of labor supply along the extensive and intensive margins and of the prevalence of subsistence self-employment.
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In: NBER Working Paper No. w26554
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In: IZA Discussion Paper No. 13156
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