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Nonparametric Estimation of Labor Supply Functions Generated by Piece Wise Linear Budget Constraints

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  • Blomquist, Sören

    ()
    (Department of Economics)

  • Newey, Whitney

    ()
    (Department of Economics)

Abstract

The basic idea in this paper is that labor supply can be viewed as a function of the entire budget set, so that one way to account non-parametrically for a nonlinear budget set is to estimate a nonparametric regression where the variable in the regression is the budget set. In the special case of a linear budget constraint, this estimator would be the same as nonparametric regression on wage and nonlabor income. Nonlinear budget sets will in general be charac-terized by many variables. An important part of the estimation method is a procedure to reduce the dimensionality of the regression problem. It is of interest to see if nonparametrically estimated labor supply functions support the result of earlier studies using parametric methods. We therefore apply parametric and nonparametric labor supply functions to calculate the effect of recent Swedish tax reform. Qualitatively the nonparametric and parametric labor supply functions give the same results. Recent tax reform in Sweden hasincreased labor supply by a small but economically important amount.

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Bibliographic Info

Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 1997:24.

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Length: 38 pages
Date of creation: 04 Sep 1997
Date of revision:
Handle: RePEc:hhs:uunewp:1997_024

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Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
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Web page: http://www.nek.uu.se/
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Keywords: Nonparametric estimation; labor supply; nonlinear budget constraints; tax reform;

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References

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  1. Andrews, Donald W. K., 1991. "Asymptotic optimality of generalized CL, cross-validation, and generalized cross-validation in regression with heteroskedastic errors," Journal of Econometrics, Elsevier, vol. 47(2-3), pages 359-377, February.
  2. Richard Blundell & Alan Duncan & Costas Meghir, 1998. "Estimating Labor Supply Responses Using Tax Reforms," Econometrica, Econometric Society, vol. 66(4), pages 827-862, July.
  3. Aronsson, Thomas & Palme, Mårten, 1994. "A Decade of Tax and Benefit Reforms in Sweden - Effects on Labour Supply, Welfare and Inequality," Working Paper Series in Economics and Finance 18, Stockholm School of Economics.
  4. 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.
  5. 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.
  6. Hausman, Jerry A & Newey, Whitney K, 1995. "Nonparametric Estimation of Exact Consumers Surplus and Deadweight Loss," Econometrica, Econometric Society, vol. 63(6), pages 1445-76, November.
  7. Agell, S.A. & Meghir, C., 1995. "Male Labour Supply in Sweden : Are Incentives Important?," Papers 12, Uppsala - Working Paper Series.
  8. Blomquist, S.N., 1991. "Flexible Functional Forms and Coherency for Labor Supply Models," Papers 1991j, Uppsala - Working Paper Series.
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Cited by:
  1. Richard Blundell & Thomas MaCurdy, 1998. "Labour supply: a review of alternative approaches," IFS Working Papers W98/18, Institute for Fiscal Studies.
  2. van Soest, Arthur & Das, Marcel & Gong, Xiaodong, 2000. "A Structural Labour Supply Model with Nonparametric Preferences," IZA Discussion Papers 211, Institute for the Study of Labor (IZA).
  3. Soest, A.H.O. van & Das, J.W.M. & Gong, X., 2001. "A Structural Labour Supply Model with Flexible Preferences," Open Access publications from Tilburg University urn:nbn:nl:ui:12-119390, Tilburg University.
  4. Leora Friedberg, 2000. "The Labor Supply Effects of the Social Security Earnings Test," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 48-63, February.

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