Once we add income and substitution effects, it'd be cool to show the predicted labor supply effect that results as a household's earning rise. That is, the same chart that shows the difference in net income and marginal tax rates could have a third version which plots predicted labor supply change.
This idea was motivated by a recent paper the failed to reject the null that the US EITC has no labor supply effect for childless individuals. Theory predicts that trapezoids have ambiguous labor supply effects, since they increase net income (reduce labor supply via income effects) while also increasing and lowering marginal tax rates (reduce or raise labor supply via substitution effects).
Once we add income and substitution effects, it'd be cool to show the predicted labor supply effect that results as a household's earning rise. That is, the same chart that shows the difference in net income and marginal tax rates could have a third version which plots predicted labor supply change.
This idea was motivated by a recent paper the failed to reject the null that the US EITC has no labor supply effect for childless individuals. Theory predicts that trapezoids have ambiguous labor supply effects, since they increase net income (reduce labor supply via income effects) while also increasing and lowering marginal tax rates (reduce or raise labor supply via substitution effects).