Volume 3, Number 3 (Summer) 1968
Green, Christopher. 1968. "Negative Taxes and Monetary Incentives to Work: The Static Theory." Journal of Human Resources 3(3):280-288.
The note examines how negative income taxation may influence incentives to work. The model indicating the income-leisure trade-off is used in both graphical and algebraic forms. The analysis indicates that if both income and leisure are "normal" goods, and if preference patterns are not changed as a result of implementation of a negative income tax plan, utility maximizing individuals will choose to work less in the presence of negative tax payments than in their absence. How much less depends on the level of income guarantee, the negative (marginal) tax rate, and the shape of the utility function.
The author is Assistant Professor of Economics, North Carolina State University, at Raleigh. The author wishes to thank Professors Barry Friedman of North Carolina State University, Hirschel Kasper of Oberlin College, and Robert J. Lampman and Harold Watts of the University of Wisconsin for stimulating and useful comments. After having completed the final draft of this paper, the author read Michael Jay Boskin's "The Negative Income Tax and the Supply of Work Effort," National Tax Journal (December 1967), pp. 353-67. Boskin's graphical presentation is similar to that presented in this paper.
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