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Is the Collective Model of Labor Supply Useful for Tax Policy Analysis? A Simulation Exercise

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  • Olivier Bargain
  • Nicolas Moreau

Abstract

The literature on household behavior contains hardly any empirical research on the withinhousehold distributional effect of tax-benefit policies. We simulate this effect in the framework of a collective model of labor supply when shifting from a joint to an individual taxation system in France. We show that the net-of-tax relative earning potential of the wife is a significant determinant of intrahousehold negotiation but with very low elasticity. Consequently, the labor supply responses to the reform are entirely driven by the traditional substitution and income effects as in a unitary model. For some households only, the reform alters the intrahousehold distribution in a way that tends to change normative conclusions. A sensitivity analysis shows that the collective model would be required if the tax reform was both radical and of extended scope.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1052.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_1052

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Keywords: collective model; intrahousehold allocation; household labor supply; tax reform;

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Cited by:
  1. Sophie Buffeteau & Damien Echevin, 2003. "Taxation, Marriage and Labor Supply: Evidence from a Natural Experiment in France," Cahiers de recherche, CIRPEE 0340, CIRPEE.
  2. Bargain, O. & Beblo, M. & Beninger, D. & Blundell, R. & Carrasco, R. & Chiuri, M-C. & Laisney, F. & Lechene, V. & Moreau, N. & Myck, M. & Ruiz-castillo, J. & Vermeulen, F.M.P., 2006. "Does the representation of household behavior matter for welfare analysis of tax-benefit policies? An introduction," Open Access publications from Tilburg University urn:nbn:nl:ui:12-194159, Tilburg University.
  3. Olivier Bargain, 2008. "Normative evaluation of tax policies: from households to individuals," Journal of Population Economics, Springer, Springer, vol. 21(2), pages 339-371, April.
  4. Bloemen, Hans, 2010. "Income Taxation in an Empirical Collective Household Labour Supply Model with Discrete Hours," IZA Discussion Papers 4697, Institute for the Study of Labor (IZA).
  5. Julie L. Hotchkiss & Robert E. Moore, 2007. "Assessing the welfare impact of the 2001 tax reform on dual-earner families," Working Paper, Federal Reserve Bank of Atlanta 2007-27, Federal Reserve Bank of Atlanta.

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