Labour supply specification and the evaluation of tax reforms
1988
This paper investigates the practical importance of the functional specification of labour supply equations for the analysis of tax/benefit reform. We consider two labour supply specifications, one derived from Stone–Geary preferences and the other from a generalisation that relaxes some of the more critical restrictions in that model. We use these equations to contrast the effects of two reforms to the U.K. income tax system; one involves income effects almost exclusively while the other implies a significant number of large increases in marginal tax rates.
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