The Measure of Tax Distortions on Labor
Abstract
The estimation of the Laffer curve (which shows the government’s income tax revenues as a function of the national average tax rate) requires an equation which states national income as a function of the national average tax rate (because revenues are equal to the product of income and the tax rate). This must be accomplished through a two step procedure. First, income is derived from the amount of labor utilized in the market (a production function). Second, labor is determined as a function of some aggregate tax measure (a labor market). The question that remains is: what is the best aggregate tax measure to use in the labor market?
While at least one economist has argued that there is no appropriate rate, various others have proposed several alternatives. One is the national average tax rate. Another possibility is an aggregate weighted-average marginal tax rate. Arguments that government spending is the best measure of the true tax burden suggest the plausibility of using the percentage of gross national product devoted to government spending. This paper examines the usefulness of a new possibility, the progresivity of the tax structure.
Description
Program year: 1983-1984Digitized from print original stored in HDR
Citation
Lewis, Michael Dean (1984). The Measure of Tax Distortions on Labor. University Undergraduate Fellows. Available electronically from https : / /hdl .handle .net /1969 .1 /CAPSTONE -LewisM _1984.