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Normative Evaluation of Tax Policies: From Households to Individuals

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Author Info
Bargain, Olivier () (IZA Bonn and DELTA, Paris)

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Abstract

We analyze the impact on French couples of a tax policy change - the introduction of a family tax credit - using jointly a collective model of household labor supply and a tax-benefit microsimulation program. In a first step, we suggest a larger interpretation of labor supply behaviors which represent a general concept of "effort" rather than the simple working duration. In this case, individual productivities cannot be assimilated with wage rates and must be retrieved. We do so by inverting the optimal household program to express productivities in function of observed labor incomes, under simple assumptions on preferences and the bargaining rule. In a second step, the calibrated model is used to predict distributive and incentives effects of the reform. By use of the collective approach, individual or household welfare indices can be aggregated within a social welfare function. Under previous assumptions, it is shown that the desirability of the reform may depend on the unit under consideration (household or individual). This simple exercise aims to take family modeling toward empirical applications and questions the validity of normative tools (social welfare functions) when both intra- and inter-household redistribution effects are accounted for.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1441.

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Length: 38 pages
Date of creation: Dec 2004
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Handle: RePEc:iza:izadps:dp1441

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Related research
Keywords: collective model; intrahousehold distribution; social welfare; household labor supply; microsimulation; tax reform;

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Find related papers by JEL classification:
C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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