TAX EFFECTS VERSUS BUDGET EFFECTS ON LABOR SUPPLY |
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| Authors: | ASSAR LINDBECK |
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| Institution: | *Institute for International Economic Studies, University of Stockholm. I am grateful for comments on an earlier draft by the members of the graduate economics seminar at Simon Fraser University, Burnaby, B.C., Canada, as well as by William Baumol, Peter Lloyd, Agnar Sandmo, Lars Svensson, Gordon Winston, and an anonymous referee. |
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| Abstract: | This paper analyzes the effects on labor supply of parallel changes in taxes and public spending of various types. A number of important recent developments in the labor supply behavior of households are highlighted by such a study of various types of "budget effects," rather than isolated "tax effects." This comes out in particular when considering cross substitution effects on labor supply of changes in public spending on goods and services or of the subsidization of goods and services provided by private markets. Moreover, the income effects of tax changes are often mitigated, or possibly even removed, by the income effects of the accompanying expenditure changes. |
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