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Estimation of Wage Equations in Australia: Allowing for Censored Observations of Labour Supply

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  • Guyonne Kalb

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

  • Rosanna Scutella

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

  • Hsein Kew

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

Abstract

This paper illustrates the use of the Melbourne Institute Tax and Transfer Simulator (a behavioural microsimulation model) in examining the impact of two hypothetical policy changes to Family Payments as they were in the March 1998 tax and transfer system. The effects of the policy changes on the choice of hours worked and the labour force participation rates among couples with dependent children are the focus of the analysis with the overall effect on net Government expenditure examined. We find that reducing the withdrawal rate on the more-than-minimum rate of Family Payment is quite costly to the Government, with a small positive labour supply response reducing this cost slightly. The second policy change, which replaces the "sudden death" income test for the minimum rate of Family Payment with a gradual taper and increases the threshold level of income above which the minimum rate begins to be withdrawn, results in a smaller increase in government expenditure and has a negligible labour supply response.

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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 wp2002n26.

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Length: 31 pages
Date of creation: Nov 2002
Date of revision:
Handle: RePEc:iae:iaewps:wp2002n26

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  1. Guyonne Kalb, 2002. "Estimation of Labour Supply Models for Four Separate Groups in the Australian Population," Melbourne Institute Working Paper Series wp2002n24, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  2. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  3. Greene, William H, 1981. "Sample Selection Bias as a Specification Error: Comment," Econometrica, Econometric Society, vol. 49(3), pages 795-98, May.
  4. Guyonne Kalb & Rosanna Scutella, 2002. "Estimation of Wage Equations in Australia: Allowing for Censored Observations of Labour Supply," Melbourne Institute Working Paper Series wp2002n08, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  5. Creedy, J. & Duncan, A.S. & Harris, M.N. & Scutella, R., 2000. "Wage Function: Australian Estimates Using the Income Distribution Survey," Department of Economics - Working Papers Series 761, The University of Melbourne.
  6. John Ermisch & Robert Wright, 1994. "Interpretation of negative sample selection effects in wage offer equations," Applied Economics Letters, Taylor & Francis Journals, vol. 1(11), pages 187-189.
  7. Guyonne R. Kalb, 2000. "Labour Supply and Welfare Participation in Australian Two-Adult Households: Accounting for Involuntary Unemployment and the 'Cost' of Part-time Work," Centre of Policy Studies/IMPACT Centre Working Papers bp-35, Victoria University, Centre of Policy Studies/IMPACT Centre.
  8. Miller, Paul & Rummery, Sarah, 1991. "Male-Female Wage Differentials in Australia: A Reassessment," Australian Economic Papers, Wiley Blackwell, vol. 30(56), pages 50-69, June.
  9. John Creedy & Guyonne Kalb & Hsein Kew, 2001. "The Melbourne Institute Tax and Transfer Simulator (MITTS)," Melbourne Institute Working Paper Series wp2001n16, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  10. Guyonne Kalb & Hsein Kew, 2002. "The Effect of a Reduced Allowance and Pension Taper Rate: Policy Simulations Using the Melbourne Institute Tax and Transfer Simulator," Melbourne Institute Working Paper Series wp2002n25, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
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