Family Labor Supply with Taxes

20 Pages Posted: 23 Apr 2004 Last revised: 24 Dec 2022

See all articles by Jerry A. Hausman

Jerry A. Hausman

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Paul A. Ruud

University of California, Berkeley - Department of Economics

Date Written: February 1984

Abstract

Over the period 1960 - 1983 the proportion of federal tax revenue raised by taxation of labor supply has risen from 57-77 percent. In this paper, we specify and estimate a model of family labor supply which treats both federal and state taxation. Husbands and wives labor supply are treated jointly rather than in aseparate manner as in previous research. A method to calculate the virtual wage for nonworking spouses is used within a utility maximizing framework to treat correctly the joint family labor supply decision. Joint family efforts are found to be important. The efficiency cost (deadweight loss) of labor taxation is estimated to be 29.6% of tax revenue raised. The effect of the new 10% deduction to ease the marriage tax for working spouses leads to a prediction of 3.8% increase in wives labor supply and a .9% decrease in husbands labor supply.Overall taxes paid are predicted to decrease by 3.4%.

Suggested Citation

Hausman, Jerry A. and Ruud, Paul A., Family Labor Supply with Taxes (February 1984). NBER Working Paper No. w1271, Available at SSRN: https://ssrn.com/abstract=321319

Jerry A. Hausman (Contact Author)

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Paul A. Ruud

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