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Assessing the impact of taxes on female labor supply using a finite mixture approach

Author

Listed:
  • Jörgen Hansen

    (IZA, Institute for the Study of Labor, P.O. Box 7240, D-53072 Bonn, Germany)

  • Peter Ericson

    (Ministry of Finance, Drottinggatan 21, 10333 Stockholm, Sweden)

Abstract

This paper expands the standard analysis of female labor supply to permit preference heterogeneity by using a finite mixture model. Using the extended model, we obtain theory consistent results whereas a traditional model produces a negative substitution effect. We use our model to illustrate the labor supply effects of a tax reform, corresponding to 1983-1992 changes in the Swedish income-tax schedule. The results shows an expected reduction in tax revenues of about 17%. Finally, we use Monte Carlo simulations and show that our proposed mixture model is robust towards different misspecifications.

Suggested Citation

  • Jörgen Hansen & Peter Ericson, 2000. "Assessing the impact of taxes on female labor supply using a finite mixture approach," Empirical Economics, Springer, vol. 25(2), pages 279-296.
    • Handle: RePEc:spr:empeco:v:25:y:2000:i:2:p:279-296
    Note: received: March 1998/final version accepted: October 1999
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    More about this item

    Keywords

    Heterogeneity in preferences; finite mixtures; female labor supply; taxes; tax simulation;
    All these keywords.

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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