ch01b_condensed

ch01b_condensed - Micro 101, Chapter 1 1 Chapter 1 notes...

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1 Chapter 1 notes (day 2 only) Average Marginal Federal Income Tax Rates and Labor Supply What is effect of X on Y ? Marginal Average Year Tax Rate (%) Weekly Hours 1965 17 39 1970 20 37 1975 21 37 1980 30 35 1985 29 35 Basic idea: work effort lower when tax rates higher talk show hosts: “The numbers speak for themselves.” A X causes Y @ True ??? (note: means A change in @ ) $ At the same time rates were changing, so were numerous other factors that might influence work decisions - need to A control for @ other variables Z 1 , Z 2 ... -ex. suppose unearned income (dividends, interest, etc.) were rising over time -people may have worked less because they were richer -work ethics may have changed $ unlike corn example, nothing else controlled for $ want independent effect of taxes on labor supply (when nothing else is changed) - impossible to learn whether causal effect (vs. mere correlation) solely from the table $ In reality, the numbers almost _______ speak for themselves
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ch01b_condensed - Micro 101, Chapter 1 1 Chapter 1 notes...

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