Greg Mankiw recommends a new paper by Richard Rogerson and Johanna Wallenius on the response of work effort to taxes. I’ve not read the paper yet, but it definitely looks interesting. Greg’s post concludes:
This paper deserves to be studied carefully by economists at Treasury and CBO. The bottom line: For simulating the effects of alternative tax regimes, one should use much larger compensated labor supply elasticities than are conventionally adopted. This conclusion, if accepted, would profoundly affect tax policy analysis, such as dynamic scoring.
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