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Identifying Interdependent Behavior in an Empirical Model of Labor Supply

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Author Info

  • Aronsson, Thomas

    ()
    (Department of Economics, Umeå University)

  • Blomquist, Sören

    ()
    (Department of Economics, Uppsala University)

  • Sacklén, Hans

    (Trade Union Institute for Economic Research)

Abstract

In this paper we test a particular form of interdependent behavior, namely the hypothesis that individuals´ choices of hours of work are influenced by the average hours of work in a social reference group. There are problems to empirically disentangle the effects of interdependent behavior and preference variation across groups. We show that panel data or data from several points in time are needed. In the empirical analysis we combine cross-section data from 1973, 1980 and 1990. Our results support the hypothesis of interdependent behavior. The implication is that conventional tax policy predictions, in which preference interdependencies are neglected, will tend to underestimate the effect of a tax reform on hours of work. Our point estimates suggest that conventional calculations would capture only about a third of the actual change in hours of work.

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Bibliographic Info

Paper provided by Trade Union Institute for Economic Research in its series Working Paper Series with number 147.

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Length: 26 pages
Date of creation: 28 Oct 1998
Date of revision:
Publication status: Published in Journal of Applied Econometrics, 1999, pages 607-626.
Handle: RePEc:hhs:fiefwp:0147

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Keywords: Labor supply; interdependent preferences; nonlinear taxes;

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References

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  1. N. S. Blomquist & U. Hansson-Brusewitz, 1990. "The Effect of Taxes on Male and Female Labor Supply in Sweden," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 317-357.
  2. Blomquist, N. Soren, 1983. "The effect of income taxation on the labor supply of married men in Sweden," Journal of Public Economics, Elsevier, vol. 22(2), pages 169-197, November.
  3. Woittiez, I. & Kapteyn, A., 1997. "Social interactions and habit formation in a model of female labor supply," Discussion Paper 1997-41, Tilburg University, Center for Economic Research.
  4. Kapteyn, A.J., 1977. "A theory of preference formation," Open Access publications from Tilburg University urn:nbn:nl:ui:12-364727, Tilburg University.
  5. Hausman, Jerry A., 1980. "The effect of wages, taxes, and fixed costs on women's labor force participation," Journal of Public Economics, Elsevier, vol. 14(2), pages 161-194, October.
  6. Kapteyn, A. & Geer, S. van der & Stadt, H. van de & Wansbeek, T., 1997. "Interdependent preferences: An econometric analysis," Open Access publications from Tilburg University urn:nbn:nl:ui:12-74366, Tilburg University.
  7. Blomquist, N. Soren, 1993. "Interdependent behavior and the effect of taxes," Journal of Public Economics, Elsevier, vol. 51(2), pages 211-218, June.
  8. repec:fth:stanho:e-90-11 is not listed on IDEAS
  9. Andreoni, James & Scholz, John Karl, 1998. "An Econometric Analysis of Charitable Giving with Interdependent Preferences," Economic Inquiry, Western Economic Association International, vol. 36(3), pages 410-28, July.
  10. Manski, Charles F, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 531-42, July.
  11. Alessie, Rob & Kapteyn, Arie, 1991. "Habit Formation, Interdependent References and Demographic Effects in the Almost Ideal Demand System," Economic Journal, Royal Economic Society, vol. 101(406), pages 404-19, May.
  12. Hausman, Jerry A., 1979. "The econometrics of labor supply on convex budget sets," Economics Letters, Elsevier, vol. 3(2), pages 171-174.
  13. Beach, Charles M & MacKinnon, James G, 1978. "A Maximum Likelihood Procedure for Regression with Autocorrelated Errors," Econometrica, Econometric Society, vol. 46(1), pages 51-58, January.
  14. Thomas MaCurdy & David Green & Harry Paarsch, 1990. "Assessing Empirical Approaches for Analyzing Taxes and Labor Supply," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 415-490.
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