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Full-Text Articles in Social and Behavioral Sciences
Income Taxes, Compensating Differentials, And Occupational Choice: How Taxes Distort The Wage-Amenity Decision (With Hui Shan), David Powell
Income Taxes, Compensating Differentials, And Occupational Choice: How Taxes Distort The Wage-Amenity Decision (With Hui Shan), David Powell
David Powell
The link between taxes and occupational choices is central for understanding the welfare impacts of income taxes. Just as taxes distort the labor-leisure decision, they may also distort the wage-amenity decision. Yet, there have been few studies on the full response along this margin. When tax rates increase, workers favor jobs with lower wages and more amenities. We introduce a two-step methodology which sues compensating differentials to characterize the tax elasticity of occupational choice. We estimate a significant compensated elasticity of 0.03, implying that a 10% increase in the net-of-tax rate causes workers to change to a 0.3% higher wage …
Heterogeneity In Income Tax Incidence: Are The Wages Of Dangerous Jobs More Responsive To Tax Changes Than The Wages Of Safe Jobs?, David Powell
David Powell
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 …