Heterogeneity in Income Tax Incidence: Are the Wages of Dangerous Jobs More Responsive to Tax Changes than the Wages of Safe Jobs?

44 Pages Posted: 10 Dec 2010

Date Written: December 9, 2010

Abstract

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 some amenities responds to taxes, the tax literature has ignored the consequences for job characteristics which cannot fully adjust. This paper compares the wage response of dangerous jobs – measured by injury and fatality rates – to the wage response of safe jobs. When marginal tax rates increase, we should see the pre-tax compensating differential for on-the-job risk increase, implying the existence of heterogeneity in the incidence of income taxes. Empirically, I find large differences in the wage response of jobs based on their riskiness.

Keywords: Income Taxes, Value of a Statistical Life, Tax Incidence, Compensating Differentials

JEL Classification: H22, H24, J17, J28, J31

Suggested Citation

Powell, David, Heterogeneity in Income Tax Incidence: Are the Wages of Dangerous Jobs More Responsive to Tax Changes than the Wages of Safe Jobs? (December 9, 2010). Available at SSRN: https://ssrn.com/abstract=1722928 or http://dx.doi.org/10.2139/ssrn.1722928

David Powell (Contact Author)

RAND Corporation ( email )

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P.O. Box 2138
Santa Monica, CA 90407-2138
United States

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