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Evaluation of four tax reforms in the United States: labor supply and welfare effects for single mothers

Eissa, Nada, Kleven, Henrik Jacobsen and Thustrup Kreiner, Claus (2008) Evaluation of four tax reforms in the United States: labor supply and welfare effects for single mothers. Journal of Public Economics, 92 (3-4). pp. 795-816. ISSN 0047-2727

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Identification Number: 10.1016/j.jpubeco.2007.08.005


An emerging consensus is that labor force participation is more responsive to taxes and transfers than hours worked. To understand the implications of participation responses for the welfare analysis of tax reform, this paper embeds this margin of labor supply in an explicit welfare theoretic framework. We apply the framework to examine the welfare effects on single mothers in the United States following four tax acts passed in 1986, 1990, 1993, and 2001. We propose a simulation method combining features of fully structural microsimulation studies and simple deadweight loss calculations. Our approach accounts for the observed heterogeneity in the microdata, but is simple to implement because we do not need to specify utility functions and estimate utility parameters. We find that each of the four tax acts created substantial welfare gains, and that the gains were concentrated almost exclusively on the participation margin. Our results imply that standard approaches not modeling the participation decision can make large errors.

Item Type: Article
Official URL:
Additional Information: © 2007 Elsevier
Divisions: Economics
Subjects: H Social Sciences > HJ Public Finance
H Social Sciences > HD Industries. Land use. Labor
JEL classification: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency; Optimal Taxation
J - Labor and Demographic Economics > J2 - Time Allocation, Work Behavior, and Employment Determination and Creation; Human Capital; Retirement > J22 - Time Allocation and Labor Supply
Date Deposited: 05 Jun 2008 13:59
Last Modified: 20 May 2024 04:42

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