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The Economic Impact of the Iraq War and Higher Military Spending

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One way affluent households might respond to a tax increase is by working less, as they see a smaller return on each hour of work. Alternatively, since after-tax income would decline, households might work more to maintain their pre-law- change levels of consumption. The research on this question indicates that labor supply, particularly among men, is unresponsive to tax rates. While most studies do not focus specifically on affluent households, the few that do arrive at a similar conclusion. The one group of workers in affluent households whose labor supply has been found to be responsive to changes in taxes on earnings.

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