Scandinavian Working Papers in Economics

Working Paper Series,
Trade Union Institute for Economic Research

No 157: Labor Supply When Tax Avoidance Matters

Jonas Agell (), Mats Persson () and Hans Sacklén
Additional contact information
Jonas Agell: Department of Economics, Postal: Uppsala University, Box 513, S-751 20 Uppsala
Mats Persson: Institute for International Economic Studies, Postal: Stockholm University, S-106 91 Stockholm
Hans Sacklén: Trade Union Institute for Economic Research, Postal: FIEF, Wallingatan 38, SE-111 24 Stockholm, Sweden

Abstract: We examine how tax avoidance in the form of trade in well-functioning asset markets affects the empirical study of labor supply. We discuss the implications for tax policy analysis, and we show that a failure to account for avoidance responses may lead to huge errors when predicting how tax reform affects labor supply, tax revenue, and the welfare cost of taxation. In conclusion we argue that our model may explain a number of otherwise hard to understand dimensions of tax payer response.

Keywords: Labour supply; Tax avoidance; Asset markets; Tax reform simulation

JEL-codes: H31; J22

34 pages, September 28, 1999

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