Review of Estimates of the Frisch Elasticity of Labor Supply
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Reichling, Felix; Whalen, Charles
Among the models that CBO uses to analyze the economic effects of changes in federal fiscal policy is a life-cycle growth model. That model requires an estimate of the responsiveness of the supply of labor to a one-time temporary change in after-tax compensation, which is described by the so-called Frisch elasticity. CBO incorporates into its analyses an estimate of the Frisch elasticity that ranges from 0.27 to 0.53, with a central estimate of 0.40. This paper describes how CBO derived that range from the research literature.
Congressional Budget Office; CBO; fiscal policy; labor supply; Frisch elasticity; after-tax compensation