Effects of an Income Tax on Labor Supply.
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An analysis of the effects of an income tax on labor supply and welfare using highly simplified models. The analysis is intended (1) to point out the kinds of labor supply parameters on which changes in labor supply depend when alternative tax changes are considered and (2) to assemble evidence on the welfare cost of an income tax. The evidence on compensated wage rate effects was obtained by studying the dimensions of labor supply for three components of the labor force: (1) hours of work for males; (2) labor force participation rates for males; (3) labor force participation of married women. Although the effect on the allocation of time of a relative price distortion at the labor-leisure margin appears to be very small--except perhaps as it affects the labor force behavior of married women--an income tax can affect consumption-savings decisions as well as the allocation of labor among different kinds of employment.
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