On modeling household labor supply with taxation

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dc.contributor.author Bargain, Olivier
dc.date.accessioned 2009-03-12T15:13:48Z
dc.date.available 2009-03-12T15:13:48Z
dc.date.copyright UCD School of Economics 2007 en
dc.date.issued 2007-08
dc.identifier.uri http://hdl.handle.net/10197/956
dc.description.abstract Discrete choice models of labor supply easily account for nonlinearity and nonconvexity in budget sets caused by tax-benefit systems. As a result, they have become very popular for ex ante evaluations of policy reforms. In this paper, we question whether the degree of flexibility and the implicit household representation in these models are satisfying when confronted to the data. First, we show that attempts to interpret discrete models structurally lead to unnecessary parametric restrictions in most studies. We suggest instead a fully flexible model that retains usual assumptions on economic rationality except regularity conditions on leisure. Indeed, coefficients may account for both tastes and costs of work, possibly making 'preferences' appear nonconvex. Second, we show that the static unitary representation, implicit in most tax policy analyses, is rejected against a more general model with price- and income- dependent preferences. The latter can be rationalized in terms of collective or intertemporal models and offers promising perspectives in these directions. Simulations show that the magnitude of predicted labor supply responses to tax-benefit reforms is sensitive to the underlying household representation. en
dc.format.extent 239820 bytes
dc.format.mimetype application/pdf
dc.language.iso en en
dc.publisher University College Dublin. School of Economics en
dc.relation.ispartofseries UCD Centre for Economic Research Working Paper Series en
dc.relation.ispartofseries WP07/11 en
dc.subject Multinomial logit en
dc.subject Household labor supply en
dc.subject Tax reform en
dc.subject Unitary model en
dc.subject Collective model en
dc.subject.classification C25 en
dc.subject.classification C52 en
dc.subject.classification H31 en
dc.subject.classification J22 en
dc.subject.lcsh Households--Economic aspects en
dc.subject.lcsh Labor supply--Econometric models en
dc.subject.lcsh Taxation en
dc.title On modeling household labor supply with taxation en
dc.type Working Paper en
dc.internal.authorurl Olivier Bargain (web page) en
dc.internal.authorurl http://www.ucd.ie/research/people/economics/drolivierbargain/ en
dc.internal.authorid UCD0001 en
dc.internal.availability Full text available en
dc.internal.webversions Publisher's version en
dc.internal.webversions http://www.ucd.ie/economics/research/papers/2007/WP07.11.pdf en
dc.status Not peer reviewed en
dc.neeo.contributor Bargain|Olivier|aut|UCD0001


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