Does Labor Supply Respond to a Flat Tax? Evidence from the Russian Tax Reform

55 Pages Posted: 30 Jun 2009

See all articles by Denvil Duncan

Denvil Duncan

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA); Institute for the Study of Labor (IZA)

Klara Sabirianova Peter

University of North Carolina - Chapel Hill; IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Abstract

We exploit the exogenous change in marginal tax rates created by the Russian flat tax reform of 2001 to identify the effect of taxes on labor supply of males and females. We apply the weighted difference-in-difference regression approach and instrumental variables to the labor supply function estimated on individual panel data. The mean regression results indicate that the tax reform led to a statistically significant increase in male hours of work but had no effect on that of females. However, we find a positive response to tax changes at both tails of the female hour distribution. We also find that the reform increased the probability of finding a job among both males and females. Despite significant variation in individual responses, the aggregate labor supply elasticities are trivial and suggest that reform-induced changes in labor supply were an unlikely explanation for the amplified personal income tax revenues that followed the reform.

Keywords: labor supply, personal income tax, flat tax, labor supply elasticity, difference-in-difference, regression discontinuity, wage endogeneity, employment participation, Russia, transition

JEL Classification: H3, J2, J3, P2

Suggested Citation

Duncan, Denvil and Sabirianova Peter, Klara, Does Labor Supply Respond to a Flat Tax? Evidence from the Russian Tax Reform. IZA Discussion Paper No. 4257, Available at SSRN: https://ssrn.com/abstract=1426744

Denvil Duncan

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA) ( email )

1315 East Tenth Street
Bloomington, IN 47405
United States

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Klara Sabirianova Peter

University of North Carolina - Chapel Hill ( email )

Chapel Hill, NC 27599
United States

HOME PAGE: http://www.unc.edu/~kpeter

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
105
Abstract Views
980
rank
308,303
PlumX Metrics