Scandinavian Working Papers in Economics

Seminar Papers,
Stockholm University, Institute for International Economic Studies

No 679: Labour Supply Prediction When Tax Avoidance Matters

Jonas Agell (), Mats Persson () and Hans Sacklén
Additional contact information
Jonas Agell: Department of economics, Uppsala University
Mats Persson: Institute for International Economic Studies, Stockholm University, Postal: Stockholm University, S-106 69 Stockholm, Sweden
Hans Sacklén: FIEF

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 re-sponses 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 dimen-sions of tax payer response.

Keywords: labour supply; tax avoidance; asset markets; tax reform simulation

JEL-codes: H31; J22

43 pages, September 28, 1999

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