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The role of labour demand elasticities in tax incidence analysis with heterogeneous labour

Bhattarai, Keshab; Whalley, John

Authors

John Whalley



Abstract

Whether labour bears full burden of household level income and consumption taxes ultimately depends on the degree of substitutability among different types of labour in production. We find more variation in incidence patterns across households with less than perfectly substitutable heterogeneous labour than with perfectly substitutable homogeneous labour in production. This finding is based on results obtained from homogeneous and heterogeneous labour general equilibrium tax models calibrated to decile level income and consumption distribution data of UK households for the year 1994. We use labour supply elasticities implied by the substitution elasticity in households' utility functions and derive labour demand elasticities from the substitution elasticity in the production function.

Citation

Bhattarai, K., & Whalley, J. (1999). The role of labour demand elasticities in tax incidence analysis with heterogeneous labour. Empirical economics, 24(4), 599-619. https://doi.org/10.1007/s001810050075

Journal Article Type Conference Paper
Publication Date 1999-11
Deposit Date Feb 16, 2021
Journal Empirical Economics
Print ISSN 0377-7332
Publisher Springer Verlag
Peer Reviewed Peer Reviewed
Volume 24
Issue 4
Pages 599-619
DOI https://doi.org/10.1007/s001810050075
Keywords Elasticities; Labour demand; Labour supply; Welfare; Tax incidence; Redistribution
Public URL https://hull-repository.worktribe.com/output/3564560