RAND Health — Bing Center for Health Economics Copyright (c) 2012 RAND Corporation All rights reserved. http://works.bepress.com/rand Recent documents in RAND Health — Bing Center for Health Economics en-us Wed, 15 Feb 2012 03:39:35 PST 3600 Income Taxes, Compensating Differentials, and Occupational Choice: How Taxes Distort the Wage-Amenity Decision http://works.bepress.com/david_powell/7 http://works.bepress.com/david_powell/7 Fri, 10 Feb 2012 10:34:52 PST 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.

]]> David Powell et al.