RESEARCH PAPER NO. 774

QUADRATIC UTILITY, LABOUR SUPPLY AND THE WELFARE EFFECTS OF TAX CHANGES

by

John Creedy

JANUARY 2001

Department of Economics. University of Melbourne. Melbourne Victoria 3010 Australia

Contents

1. Introduction

2. Labour Supply

3. The Slutsky Condition

4. Welfare Changes

4.1 The Expenditure Function

4.2 Compensating and Equivalent Variations

5. Numerical Examples

5.1 The Tax System

5.2 Utility and Labour Supply

6. Conclusions

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