The economic effects of taxes have been focused on especially by the supply side economists. Apart from its income generating function, the contribution of taxes to the economic develeopment depends on the potential effects of taxes on savings, investments and labour supply. These effects are namely the income, substitution and fiscal effects. It has been argued that tax reform, that would lead to an increase in the income effect and a decrease in the substitution effect, is important for the economic development and resource allocation. In this study, the potential effects of taxes on labour supply have been explained both theoretically and ampirically. The ampiric studies, examining the effects of tax reforms on labour supply realized in 1980s in industrialized countries, have shown that the effects are relatively low. The potential effects differ for the female and the male labour supply and for the low and the high income groups.