Do Higher Taxes Make Us Work Less?

There are reasons to think that taxes, unless they reach very high levels, don’t have a big effect on how much people work.

First, most jobs, even part-time jobs, require a minimum number of hours per week. Few people are likely to quit working entirely because of taxes.

Second, when you tax people, they are poorer, and they need to work more to maintain their standard of living. University of Michigan economists Matthew Shapiro and Miles Kimball find that this almost entirely cancels out the disincentive, leaving total labor supply about the same. Of course, that’s bad, because people enjoy leisure. But the flip side of it is that if people do actually reduce their work to avoid taxes, they enjoy their time off.

When you look out at the world, you see lots of circumstantial evidence that taxes don’t have a crushing effect on the labor supply. For example, in a recent blog post at the NYT’s Upshot, Neil Irwin reports that countries with higher taxes and more generous welfare systems also tend to have a higher share of the population in the labor force: ...

Also, if you look at the U. S.'s past, you see that although taxes have come down over time, people are not working more than they used to.