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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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References

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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 urn:nbn:nl:ui:12-194159, Tilburg University.
  2. Hans G. Bloemen, 2010. "Income Taxation in an Empirical Collective Household Labour Supply Model with Discrete Hours," Tinbergen Institute Discussion Papers 10-010/3, Tinbergen Institute.
  3. Sophie Buffeteau & Damien Echevin, 2003. "Taxation, Marriage and Labor Supply: Evidence from a Natural Experiment in France," Cahiers de recherche 0340, CIRPEE.
  4. Julie L. Hotchkiss & Robert E. Moore, 2007. "Assessing the welfare impact of the 2001 tax reform on dual-earner families," Working Paper 2007-27, Federal Reserve Bank of Atlanta.
  5. Bargain, Olivier, 2004. "Normative Evaluation of Tax Policies: From Households to Individuals," IZA Discussion Papers 1441, Institute for the Study of Labor (IZA).

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