I study what happens when one strips away the strong preference assumptions made in empirical research and maintains only the reasonable assumption that people prefer to have both more income and more leisure. Then revealed preference analysis takes a form similar to that originally studied by [Paul] Samuelson [in the 1930s]. I find that one cannot obtain sharp predictions of time allocation under new policies. Indeed, one cannot predict whether labour supply would increase or decrease in response to changes in tax rates.
I then explore the identifying power of adding assumptions that restrict the population distribution of preferences. As in my past research, I find it illuminating to begin with weak assumptions and then to characterize the identifying power of stronger assumptions. (See Manski 2007 for a textbook exposition of the approach.) My generic finding is partial identification of the preference distribution. Rather strong and implausible assumptions are needed to make sharp predictions.
Thus, we really do not know how labour supply responds to tax rates. This conclusion will comfort neither conservatives nor liberals. Yet our society deserves to be aware of what we do not know.No report on whether the professor showed up for work this morning.