Tax Reforms and Labor Supply

The 1980s were a period of substantial changes in the US tax code and income distribution. Even after controlling for demand-side factors that altered the returns to education, researchers have shown that behavioral responses to tax reform remain substantial. This paper reviews the lessons that have emerged from research on the behavioral response to tax reforms, focusing primarily on the labor supply response. The paper also builds on that work by examining whether the dramatic responses in taxable income over the 1980s are due to an increase in male labor market participation. Microdata from 1976 to 1993 are consistent with only a small male labor supply response after the Tax Reform Act of 1986. This finding is important for the interpretation of previous work and for the design of tax policy.