The Effect of Anticipated Tax Changes on Intertemporal Labor Supply and the Realization of Taxable Income

40 Pages Posted: 13 Aug 2006 Last revised: 20 Oct 2006

See all articles by Adam Looney

Adam Looney

Brookings Institution; U.S. Department of the Treasury, Office of Tax Analysis (OTA)

Monica Singhal

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: August 2006

Abstract

We use anticipated changes in tax rates associated with changes in family composition to estimate intertemporal labor supply elasticities and elasticities of taxable income with respect to the net-of-tax wage rate. Changes in the ages of children can affect marginal tax rates through provisions of the tax code that are tied to child age and dependent status. We identify behavioral responses to these tax changes by comparing families who experienced a tax rate change to families who had a similar change in dependents but no resulting tax rate change. A primary advantage of our approach is that these changes can be anticipated, allowing us to estimate substitution effects that are not confounded by life-cycle income effects. We estimate an intertemporal elasticity of family labor earnings of 0.75 for families earning between $35,000 and $85,000 in the Survey of Income and Program Participation (SIPP) and find very similar estimates using the IRS-NBER individual tax panel.

Suggested Citation

Looney, Adam and Singhal, Monica, The Effect of Anticipated Tax Changes on Intertemporal Labor Supply and the Realization of Taxable Income (August 2006). NBER Working Paper No. w12417, Available at SSRN: https://ssrn.com/abstract=923068

Adam Looney

Brookings Institution ( email )

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U.S. Department of the Treasury, Office of Tax Analysis (OTA) ( email )

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Monica Singhal (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

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HOME PAGE: http://ksgfaculty.harvard.edu/monica_singhal

National Bureau of Economic Research (NBER) ( email )

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