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The role of labour demand elasticities in tax incidence analysis with heterogeneous labour

Conference paper
Part of the Studies in Empirical Economics book series (STUDEMP)

Abstract

Whether labour bears full burden of household level income and consumption taxes ultimately depends on the degree of substitutability among different types of labour in production. We find more variation in incidence patterns across households with less than perfectly substitutable heterogeneous labour than with perfectly substitutable homogeneous labour in production. This finding is based on results obtained from homogeneous and heterogeneous labour general equilibrium tax models calibrated to decile level income and consumption distribution data of UK households for the year 1994. We use labour supply elasticities implied by the substitution elasticity in households’ utility functions and derive labour demand elasticities from the substitution elasticity in the production function.

Key words

Elasticities labour demand labour supply welfare tax incidence redistribution 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2000

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of Warwick, CoventryUK
  2. 2.Department of EconomicsUniversity of Western OntarioLondon OntarioCanada
  3. 3.National Bureau of Economic ResearchCambridgeUSA

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