Empirical studies show that the market labor supply of prime-age males (between the ages of 25 and 55) in the United States is close to perfectly inelastic with respect to the labor compensation. If this is the case, explain why it does not imply that the excess burden of a tax on the labor income of prime-age males is necessarily zero. What does a perfectly inelastic market labor supply imply about the incidence of taxes on labor income? Why is there reason to believe that the overall market labor supply is not perfectly elastic when groups other than prime-age males are considered? What possible problems exist in empirical studies of the response to taxes on labor income that might make it difficult to estimate actual labor market responses?

  • CreatedAugust 22, 2015
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