Tag Archives: taxrate

Briefly describe in words the substitution effect on labor supply for an individual in the top bracket from the reduction in the marginal taxrate from 40% to 25%.

1.(42points) In his influential work on the impact of taxes on labor supply, Jerry Hausman assumed desired (or optimal) annual hours followed this formula:.(Note: I am not going to make you derive thisformula—it comes from a somewhat complicated mathematical formula for the utility function, so just trust me that this is correct.) Assume a two-bracket […]