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Labor Supply Responses to Income Taxation among Older Couples: Evidence from a Canadian Reform

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  • Derek Messacar

Abstract

I assess whether the tax code is a viable policy lever for influencing labor supply among older workers. Specifically, using administrative data from Canada, I estimate the earnings responses to a unique reform that lowered tax burdens for couples with a pensioner, using quasi-experimental methods. I find that workers decrease labor supply as tax bills decline but do not respond to changes in marginal tax rates. Hence, while public policy often aims to keep people in the workforce longer, there are conflicting effects of offering tax advantage for seniors on work incentives. I consider implications of these results for age-dependent taxation.

Suggested Citation

  • Derek Messacar, 2024. "Labor Supply Responses to Income Taxation among Older Couples: Evidence from a Canadian Reform," American Economic Journal: Economic Policy, American Economic Association, vol. 16(1), pages 228-258, February.
    • Handle: RePEc:aea:aejpol:v:16:y:2024:i:1:p:228-58
    DOI: 10.1257/pol.20210075
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    More about this item

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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