PAYROLL AND PROGRESSIVE INCOME taxes play an enormous role in the American fiscal system. It is therefore of some importance to know the extent to which they influence work incentives. The purpose of this study is to present some econometric evidence on the effects of taxes on married women, a group of growing importance in the American labor force.2 A testable model of labor supply is developed which permits statistical estimation of a coefficient of tax perception. Unlike previous models of labor supply, it allows for the possibility that the wage may depend on the number of hours worked. Contrary to much of the literature, the results of this paper strongly suggest that marginal tax rates do have an important impact on labor force behavior. This section reviews briefly the past thought on this problem. Section 2 develops a model to explain work decisions when an individual faces a whole set of wagehour combinations, rather than a given wage independent of the number of hours he works. In Section 3 this model is modified to permit an explicit test of whether or not taxes affect individuals' labor supply decisions. Estimation problems are discussed at length, and the empirical results are presented. A concluding section contains a summary and suggestions for future research.

THE economic and demographic determinants of the labor force behavior of married females have been studied intensively.' Many of the important variables have now been isolated: education, age, income of husband, number of children, etc. However, as will be discussed below, the existing literature pays insufficient attention to the fact that U.S. income tax laws have placed a large burden on the earnings of married women. When a married couple chooses to enjoy the tax advantages of filing jointly, the first dollar earned by the wife is in effect taxed at the same marginal rate as the last dollar earned by the husband.2 The purpose of this paper is to present some empirical results on the impact of tax rates on the labor supply of married women. Explicit attention is focused on the extent to which individuals react to net rather than gross wages. The evidence strongly supports the view that it is the net wage that matters in the hours of work decision. Section I briefly discusses how taxes have been treated traditionally in the analysis of labor supply. Section II presents a model for examining the impact of taxes on labor supply, and section III contains the results of an empirical test of this model. A concluding section discusses work in progress which will refine and extend the results of this paper.

TFhe last few years have seen a resurgence of interest in the old question of how best to raise tax revenue. Roughly speaking, two different problems have been studied. TFhe first is to find a set of commodity taxes that is optimal given certain efficiency and (sometimes) equity considerations. In a second strain of the literature, it is assumed that the revenue system is based upon income rather than commodity taxation, and the problem is to determine the optimal degree of progressivity (or regressivity) .1,2 TI he principal motivation of some writers in the optimal taxation literature seems to be the discovery of fairly simple rules which policy makers actually can implement. Others are more interested in theoretical exploration of the implications of alternative economic assumptions than in developing usable policy recommendations. Practically all the contributions, however, have been quite mathematical and thus inaccessible to many practitioners in the public finance area. The purpose of this essay is to discuss in a nontechnical way the methodology and principal conclusions of the optimal taxation literature.3 In Sections 1 and II are discussed the optimal commodity and income tax literatures, respectively. Following this are some observations on the accomplishments of optimal taxation research and on some open questions.