Pom Janjala Chirakijja, Monash University

Title: Wages, taxes, and labor supply elasticities: The role of social preferences

Abstract: Economists typically treat labor supply responses to wages and taxes as equivalent. We show that social preferences towards tax-funded government expenditures induce differences between the wage and net-of-tax rate elasticities of labor supply in canonical models. We use a large-scale vignette experiment to show that wage elasticities of labor supply are meaningfully larger than their net-of-tax rate counterparts, consistent with overall positive social preferences. We show relevance for real labor market decisions by leveraging an existing elasticity of taxable income meta-analysis. Hence, models calibrated using net-of-tax rate elasticities when wage elasticities are more suitable understate individuals’ labor supply responses.

Presenter: Janjala (Pom) Chirakijja, Monash University

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