Title

Three essays on the effect of taxes on economic behavior

Date of Award

2004

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Economics

Advisor(s)

Gary V. Engelhardt

Keywords

Labor supply, Saving behavior, Taxes, Economic behavior

Subject Categories

Economics | Labor Economics | Social and Behavioral Sciences

Abstract

Estimation of the effect of tax and transfer policies on economic behavior is a central area of study in the fields of public finance and labor economics. By changing relative prices, policies affect the consumption/saving and labor/leisure choices of individuals and households. The direction and magnitude of such responses are key elements in the effort to measure the overall effect of taxes on economic behavior. The three essays in this dissertation examine two important areas of recent research: the effect of taxes on female labor supply and the effect of subsidies on saving behavior. In the first essay, I estimate female labor supply elasticities in the presence of taxes in a lifecycle-consistent framework, and then calculate the economic cost of taxation. I employ many of the most current econometric techniques to estimate panel data models with fixed effects in the presence of censoring and am able to estimate both intratemporal and intertemporal elasticities for female labor supply. Using data on a panel of married females from the Panel Study of Income Dynamics (PSID), female labor supply is found to be highly responsive to taxes, while intratemporal and intertemporal elasticities are estimated to be larger than 1. Blomquist and Newey (2002) have proposed a nonparametric estimator for labor supply functions, in the presence of nonlinear budget sets. In the second essay, I extend their nonparametric estimator to censored dependent variables, propose econometric strategies to empirically estimate the model, and estimate female labor supply elasticities taking into account the entire budget set using data from 1987 wave of PSID. I find evidence of an elastic response to taxation with the compensated wage elasticity estimated to be 1.19. In the last essay, Gary Engelhardt and I study the effect of employer matching on 401(k) saving using data from the 1992 wave of Health and Retirement Study (HRS). We derive a lifecycle-consistent theoretical model for 401(k) saving, and structurally estimate behavioral elasticities using unique administrative data on 401(k) plans by laying out the individual's complete budget set. We estimate that the elasticity of 401(k) contributions with respect to the match rate is 0.33.

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