Taxation and labour supply: evidence from Jamaica

In light of the reform of tax systems in developing countries in the 1990s, the impact of taxation on labour supply has gained considerable importance. In Jamaica, in particular, following the ‘supply side’ approach to tax reform, tax rates were reduced with very little empirical evidence, about the relationship between taxes and their effects on labour supply. Thus, the magnitude of the tax break required to generate a certain level of productivity is unknown. Part of the reason for this lack of information might be due to the proposition that structural unemployment in many developing countries and the growing importance of the informal sector, with global competition, makes the effect of productivity gains due to changes in tax rates a matter of small importance. This study utilizes the special 1993 Survey of living Conditions (SLC) module which asked respondents about their income from primary and secondary employment, the hours worked and a number of socioeconomic variables such as age, education and gender. This paper is made up of 5 sections. Section II outlines the model which informs the analysis, Section III describes the data, Section IV reports the results which are compared with other studies, and Section V provides a summary and conclusion.