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Is the Collective Model of Labor Supply Useful for Tax Policy Analysis? A Simulation Exercise

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  • Bargain, Olivier

    ()
    (University of Aix-Marseille II)

  • Moreau, Nicolas

    ()
    (Université de la Réunion)

Abstract

The literature on household behavior contains hardly any empirical research on the within-household distributional effect of tax-benefit policies. We simulate this effect in the framework of a collective model of labor supply when shifting from a joint to an individual taxation system in France. We show that the net-of-tax relative earning potential of the wife is a significant determinant of intrahousehold negotiation but with very low elasticity. Consequently, the labor supply responses to the reform are entirely driven by the traditional substitution and income effects as in a unitary model. For some households only, the reform alters the intrahousehold distribution in a way that tends to change normative conclusions. A sensitivity analysis shows that the collective model would be required if the tax reform was both radical and of extended scope.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1451.

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Length: 38 pages
Date of creation: Jan 2005
Date of revision:
Publication status: published in: Research on Economic Inequality, 2007 (14), 317-344
Handle: RePEc:iza:izadps:dp1451

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Keywords: household labor supply; intrahousehold allocation; collective model; tax reform;

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Cited by:
  1. Bargain, O. & Beblo, M. & Beninger, D. & Blundell, R. & Carrasco, R. & Chiuri, M-C. & Laisney, F. & Lechene, V. & Moreau, N. & Myck, M. & Ruiz-castillo, J. & Vermeulen, F.M.P., 2006. "Does the representation of household behavior matter for welfare analysis of tax-benefit policies? An introduction," Open Access publications from Tilburg University, Tilburg University urn:nbn:nl:ui:12-194159, Tilburg University.
  2. Sophie Buffeteau & Damien Echevin, 2003. "Taxation, Marriage and Labor Supply: Evidence from a Natural Experiment in France," Cahiers de recherche, CIRPEE 0340, CIRPEE.
  3. Bargain, Olivier, 2004. "Normative Evaluation of Tax Policies: From Households to Individuals," IZA Discussion Papers 1441, Institute for the Study of Labor (IZA).
  4. Hans G. Bloemen, 2010. "Income Taxation in an Empirical Collective Household Labour Supply Model with Discrete Hours," Tinbergen Institute Discussion Papers, Tinbergen Institute 10-010/3, Tinbergen Institute.
  5. Julie L. Hotchkiss & Robert E. Moore, 2007. "Assessing the welfare impact of the 2001 tax reform on dual-earner families," Working Paper, Federal Reserve Bank of Atlanta 2007-27, Federal Reserve Bank of Atlanta.

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