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Measuring Welfare Changes With Nonlinear Budget Constraints in Continuous and Discrete Hours Labour Supply Models

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  • John Creedy

    ()
    (Department of Economics, The University of Melbourne)

  • Guyonne Kalb

    ()
    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

Abstract

This paper examines the computation of exact welfare measures in the context of labour supply models. It is suggested that the standard method of computing compensating and equivalent variations does not allow su.ciently for the nonlinearity of the budget constraint. An exact method is suggested. The method is applied to contexts in which individuals are allowed to vary their hours continuously and where only a limited number of discrete hours of work are available. Discrete hours models have in recent years been used in view of the substantial econometric advantages when estimating the parameters of direct utility functions.

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Bibliographic Info

Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2001n09.

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Length: 30 pages
Date of creation: Sep 2001
Date of revision:
Handle: RePEc:iae:iaewps:wp2001n09

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  1. Tim Callan & Arthur Van Soest, 1996. "Family Labour Supply and Taxes in Ireland," Papers WP078, Economic and Social Research Institute (ESRI).
  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. Van Soest, A., 1992. "Discrete Choice Models of Family Labour Supply," Papers 9214, Tilburg - Center for Economic Research.
  4. M. Keane & R. Mofitt, 1995. "A Structural Model of Multiple Welfare Program Participation and Labor Supply," Working Papers 95-4, Brown University, Department of Economics.
  5. Creedy, John & Duncan, Alan, 2002. " Behavioural Microsimulation with Labour Supply Responses," Journal of Economic Surveys, Wiley Blackwell, vol. 16(1), pages 1-39, February.
  6. Soest, A.H.O. van & Das, J.W.M., 2000. "Family labor supply and proposed tax reforms in the Netherlands," Open Access publications from Tilburg University urn:nbn:nl:ui:12-121735, Tilburg University.
  7. Jerry A. Hausman, 1983. "Taxes and Labor Supply," NBER Working Papers 1102, National Bureau of Economic Research, Inc.
  8. Duncan, Alan & Weeks, Melvyn, 1997. "Behavioural tax microsimulation with finite hours choices," European Economic Review, Elsevier, vol. 41(3-5), pages 619-626, April.
  9. Creedy, J., 2001. "Quadratic Utility, Labour Supply and The Welfare Effects of Tax Changes," Department of Economics - Working Papers Series 774, The University of Melbourne.
  10. Creedy, John, 2000. "Measuring Welfare Changes and the Excess Burden of Taxation," Bulletin of Economic Research, Wiley Blackwell, vol. 52(1), pages 1-47, January.
  11. Richard Blundell & Alan Duncan & Julian McCrae & Costas Meghir, 2000. "The labour market impact of the working families’ tax credit," Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 75-103, March.
  12. Hausman, Jerry A, 1981. "Exact Consumer's Surplus and Deadweight Loss," American Economic Review, American Economic Association, vol. 71(4), pages 662-76, September.
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