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Labor Supply Responses to Income Taxation among Older Couples: Evidence from a Canadian Reform

Author

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  • Derek Messacar
Abstract
This paper estimates real and avoidance responses to income taxation among older couples in Canada. Using administrative data and exploiting a unique reform affecting tax on pension income, I observe large effects on labor supply using an instrumental variables approach. However, workers respond to compensated changes in their average rather than marginal tax rates, consistent with ‘schmeduling’ behavior. Further, I show that taxable incomes vary with the availability of deductions, offering credible evidence of tax planning within couples. These findings provide new insights into the black box of intra-household labor supply and have implications for estimating excess burden of taxation.

Suggested Citation

  • Derek Messacar, 2022. "Labor Supply Responses to Income Taxation among Older Couples: Evidence from a Canadian Reform," Cahiers de recherche / Working Papers 10, Institut sur la retraite et l'épargne / Retirement and Savings Institute.
    • Handle: RePEc:rsi:irersi:10
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    References listed on IDEAS

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    More about this item

    Keywords

    Elasticity of taxable income; tax avoidance; unitary model; collective model; schmeduling; empirical density design; instrumental variables;
    All these keywords.

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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