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Labour supply, search and taxes

By Alan Manning

Abstract

Classical labour supply theory is one of the most sophisticated parts of labour economics. Yet, there is no compelling theoretical reason to believe in an outcome on a classical labour supply curve and it is unclear whether it is a good empirical description of the way in which labour markets actually work. This paper uses the techniques of search theory to analyse the impact of changes in the tax system on incentives to work when individuals do not have flexibility of hours within jobs. It is shown how the traditional comparative statics are of some use but are rarely the whole story and some comparative statics results are surprising. For example, it is shown how a revenue-neutral increase in marginal tax rates will increase incentives to work

Topics: HD Industries. Land use. Labor, HJ Public Finance
Publisher: Centre for Economic Performance, London School of Economics and Political Science
Year: 2000
OAI identifier: oai:eprints.lse.ac.uk:20202
Provided by: LSE Research Online

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