A central finding of the modern labor market literature is that labor supply responses tend to be concentrated along the extensive margin (labor force participation) rather than the intensive margin (hours of work). Yet, the literature on the marginal cost of public funds (MCF) focuses solely on...

A large literature evaluating the welfare effects of taxation has examined the role of the labor supply elasticity, and has shown that the estimated welfare effects are highly sensitive to its size. A common feature of this literature is its exclusive focus on hours worked and the associated...