Tax Arbitrage and Labor Supply

36 Pages Posted: 18 Sep 1998 Last revised: 9 May 2000

See all articles by Jonas Agell

Jonas Agell

Stockholm University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Mats Persson

Stockholm University; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: August 1998

Abstract

We examine how tax avoidance in the form of trade in well-functioning asset markets affects the basic labor supply model. We argue that models that integrate tax arbitrage and labor supply decisions may shed light on a number of positive and normative questions concerning modern systems of income taxation. Such models also appear to have strong implications for empirical research. Studies that ignore the effects of tax arbitrage and asset trade on labor supply incentives may easily come up with biased estimates of the tax responsiveness of the hours supply of high-wage individuals. Finally, because of tax avoidance in the form of asset trade, international comparisons of income inequality will exaggerate the redistributive achievements of high-tax countries like Sweden.

Suggested Citation

Agell, Jonas and Persson, Mats, Tax Arbitrage and Labor Supply (August 1998). NBER Working Paper No. w6708. Available at SSRN: https://ssrn.com/abstract=120828

Jonas Agell (Contact Author)

Stockholm University - Department of Economics ( email )

Universitetsvägen 10 A
House A, floor 4 and 7
Frescati, Stockholm
Sweden

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Mats Persson

Stockholm University ( email )

Stockholm, SE-10691
Sweden

HOME PAGE: http://www.cesifo.de

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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