Taxes, Labor Supply and the Interdependencies among Preferences of Households
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The article contains an attempt to identify the impact the changes in personal income tax rate exert on the labor supply. The study is based on the model of the economy in which households select an optimum in the labor supply taking into account incomes, tax rates and level of own consumption in relation to the consumption of a given reference group. The model, exploiting comparative static's instruments, contains the necessary and sufficient conditions for the labor supply function to monotonically depend on personal income tax rate. It has been evidenced that the increase in taxation burdens decreases labor supply. The authors also indicate the possibility that there could exist multipoint equilibrium states.
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