The link between taxes and occupational choices is central for understanding the welfare impacts of income taxes. Just as taxes distort the labor-leisure decision, they may also distort the wage-amenity decision. Yet, there have been few studies on the full response along this margin. When tax rates increase, workers favor jobs with lower wages and more amenities. We introduce a two-step methodology which uses compensating differentials to characterize the tax elasticity of occupational choice. We estimate a significant compensated elasticity of 0.03, implying that a 10 percent increase in the net-oftax rate causes workers to change to a 0.3 percent higher wage job. (JEL H24, H31, J22, J24, J31)
Powell, David, and Hui Shan.
"Income Taxes, Compensating Differentials, and Occupational Choice: How Taxes Distort the Wage-Amenity Decision."
American Economic Journal: Economic Policy,
Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
Fiscal Policies and Behavior of Economic Agents: Household
Time Allocation and Labor Supply
Human Capital; Skills; Occupational Choice; Labor Productivity
Wage Level and Structure; Wage Differentials