LABOR SUPPLY, COMMODITY DEMAND AND MARGINAL TAX-REFORM

This paper examines the implications of extending the Ahmad-Stern mode l of indirect tax reform to include labour supply. The inclusion of la bour supply alters the basic measure of marginal revenue cost (MRC) of indirect taxation and introduces the possibility of calculating a MRC for direct taxation. The paper derives the expressions for these revi sed MRCs and provides estimates from Irish data. It then examines the sensitivity of the results to assumptions regarding functional form an d, in particular, goods/leisure separability.