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Public Economics Lectures Part 1: Introduction

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Feldstein 1995, 1999<br />

Following Harberger, large literature in labor estimated effect of taxes<br />

on hours worked to assess effi ciency costs of taxation<br />

Feldstein observed that labor supply involves multiple dimensions, not<br />

just choice of hours: training, effort, occupation<br />

Taxes also induce ineffi cient avoidance/evasion behavior<br />

Structural approach: account for each of the potential responses to<br />

taxation separately and then aggregate<br />

Feldstein’s alternative: elasticity of taxable income with respect to<br />

taxes is a suffi cient statistic for calculating deadweight loss<br />

<strong>Public</strong> <strong>Economics</strong> <strong>Lectures</strong> () <strong>Part</strong> 3: Effi ciency 62 / 105

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