Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/70404
Authors: 
Bhattarai, Keshab
Whalley, John
Year of Publication: 
2002
Series/Report no.: 
Research Report, Department of Economics, University of Western Ontario 2002-3
Abstract: 
We compare the welfare costs of tax distortions of labour supply in one and two member household discrete and continuous labour supply (leisure consumption) choice models. In the discrete models taxes induce a large response from a subset of the population, while the majority of the population exhibits unchanged behaviour. In contrast the majority of the population reacts to tax changes in continuous models. Models are made comparable by calibrating to the same aggregate uncompensated labour supply elasticities in discrete and continuous models. The welfare costs of similar taxes are significantly different when individuals face discrete labour supply choices than when they choose working hours continuously, and vary with tax rates in different ways. Analysis of results from these models show that discrete choice matters in the assessment of the costs of labour supply tax distortions.
Subjects: 
discreteness
labour supply
welfare
taxes
equilibrium
JEL: 
D58
D60
H23
H31
Document Type: 
Working Paper

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