Cover: Heterogeneity in Income Tax Incidence

Heterogeneity in Income Tax Incidence

Are the Wages of Dangerous Jobs More Responsive to Tax Changes than the Wages of Safe Jobs?

Published Jan 18, 2011

by David Powell

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Income taxes distort the relationship between wages and non-taxable amenities. When the marginal tax rate increases, amenities become more valuable as the compensating differential for low-amenity jobs is taxed away. While there is evidence that the provision of amenities responds to taxes, the literature has ignored the consequences for job characteristics which cannot fully-adjust. This paper compares the wage response of dangerous jobs to the wage response of safe jobs. When tax rates increase, we should see the pre-tax compensating differential for on-the-job risk increase. Empirically, this paper finds large differences in the wage response of jobs based on their riskiness.

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