Labour supply and taxes

How labour supply is affected by taxes is a classical topic in economic labour studies and has generated a large empirical literature, which continues to expand. In focus is the labour supply elasticity and the most examined margins are the number of hours worked and participation in the labour force. In addition, studies have also been concerned with intertemporal labour supply and differences in supply behaviour of different groups in the labour force. The early empirical research using individual level data was mainly estimating regression models of a measure of labour supply (hours or labour force status) on net-of-tax wages plus controls. The more recent structural models provide a framework for explicitly considering many margins of response and the detail of the tax and benefit system. They are also well suited to study heterogeneity (and have indeed demonstrated heterogeneous responses) and the distributional effects of taxation.