Partially offset by another distortion: By decreasing the benefits of labor, each income tax increase will cause taxpayers to substitute leisure for work, causing economic losses. Estimates of the magnitude of those losses:
Dominant view: $.30 - $.50 for every $1 raised in tax revenue
Snow/Warren (1996)
Dissenting view: More than $1 for every $1 raised in tax revenue
Feldstein (1997)
This adverse effect will not occur, however, if both:
(a) tax increase is used to finance production of a public good, and
(b) incidence of the tax matches incidence of the benefits of the public good
Kaplow (1996; 1998; 2004)