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Labour Supply and Taxes: New Estimates of the Responses of Wives to Husbands' Wages

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  • Dostie, Benoit

    ()
    (HEC Montreal)

  • Kromann, Lene

    ()
    (CEBR, Copenhagen)

Abstract

In this paper, we estimate income- and substitution- labour supply and participation elasticities for Canadian married women using data from the Survey of Labour and Income Dynamics 1996-2005. We use the Canadian Tax and Credit Simulator (CTaCS) and detailed information on the structure of income at the household level to compute the marginal tax rates faced by each individual. We then use these marginal tax rates to compute net own-wage, spouse-wage, and non-labour income. We show how the magnitude of the estimated elasticities varies depending on whether net or gross wages and income are used in the estimation procedure, and quantify biases caused by using average instead of marginal tax rates. Finally, because marginal tax rates vary significantly over the sample, we use quantile regressions to compare elasticities at different points of the hours distribution. Overall, our results show that public policies now have, on average, less scope for influencing hours of work than 10 years ago. However, the quantile results show that wives working fewer hours per week are more sensitive to changes in their own or spouses' wages.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6392.

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Length: 31 pages
Date of creation: Feb 2012
Date of revision:
Publication status: published in: Applied Economics, 2013, 45 (31), 4355-4368
Handle: RePEc:iza:izadps:dp6392

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Keywords: labour supply; elasticities; labour force participation; taxes; Canada;

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References

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  1. Paul J Devereux, 2006. "Improved Errors-in-Variables Estimators for Grouped Data," Working Papers 200602, School Of Economics, University College Dublin.
  2. Paul J. Devereux, 2004. "Changes in Relative Wages and Family Labor Supply," Journal of Human Resources, University of Wisconsin Press, vol. 39(3).
  3. Osberg, Lars & Phipps, Shelley, 1993. "Labour Supply with Quantity Constraints: Estimates from a Large Sample of Canadian Workers," Oxford Economic Papers, Oxford University Press, vol. 45(2), pages 269-91, April.
  4. Charles Michalopoulos & Philip K. Robins, 2000. "Employment and child-care choices in Canada and the United States," Canadian Journal of Economics, Canadian Economics Association, vol. 33(2), pages 435-470, May.
  5. Joshua Angrist, 1988. "Grouped Data Estimation and Testing in Simple Labor Supply Models," Working Papers 614, Princeton University, Department of Economics, Industrial Relations Section..
  6. Nakamura, Alice & Nakamura, Masao, 1981. "A Comparison of the Labor Force Behavior of Married Women in the United States and Canada, with Special Attention to the Impact of Income Taxes," Econometrica, Econometric Society, vol. 49(2), pages 451-89, March.
  7. J. Barry Smith & Morton Stelcner, 1988. "Labour Supply of Married Women in Canada, 1980," Canadian Journal of Economics, Canadian Economics Association, vol. 21(4), pages 857-70, November.
  8. Paul J. Devereux, 2007. "Small-sample bias in synthetic cohort models of labor supply," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(4), pages 839-848.
  9. Emmanuel Saez & Michael R. Veall, 2005. "The Evolution of High Incomes in Northern America: Lessons from Canadian Evidence," American Economic Review, American Economic Association, vol. 95(3), pages 831-849, June.
  10. Pierre Lefebvre & Philip Merrigan, 2008. "Child-Care Policy and the Labor Supply of Mothers with Young Children: A Natural Experiment from Canada," Journal of Labor Economics, University of Chicago Press, vol. 26(3), pages 519-548, 07.
  11. Nakamura, Masao & Nakamura, Alice & Cullen, Dallas, 1979. "Job Opportunities, the Offered Wage, and the Labor Supply of Married Women," American Economic Review, American Economic Association, vol. 69(5), pages 787-805, December.
  12. Nakamura, Alice & Nakamura, Masao, 1985. "Dynamic models of the labor force behavior of married women which can be estimated using limited amounts of past information," Journal of Econometrics, Elsevier, vol. 27(3), pages 273-298, March.
  13. Alice Nakamura & Masao Nakamura, 1983. "Part-Time and Full-Time Work Behaviour of Married Women: A Model with a Doubly Truncated Dependent Variable," Canadian Journal of Economics, Canadian Economics Association, vol. 16(2), pages 229-57, May.
  14. Phipps, S., 1988. "Behavioural Response To Ui Reform In Constrained And Unconstrained Models Of Labour Supply," Department of Economics at Dalhousie University working papers archive 88-01, Dalhousie, Department of Economics.
  15. Chris Robinson & Nigel Tomes, 1985. "More on the Labour Supply of Canadian Women," Canadian Journal of Economics, Canadian Economics Association, vol. 18(1), pages 156-63, February.
  16. Eduardo Pontual Ribeiro, 2001. "Asymmetric labor supply," Empirical Economics, Springer, vol. 26(1), pages 183-197.
  17. Richard P. Chaykowski & Lisa M. Powell, 1999. "Women and the Labour Market: Recent Trends and Policy Issues," Canadian Public Policy, University of Toronto Press, vol. 25(s1), pages 2-25, November.
  18. Bradley T. Heim, 2007. "The Incredible Shrinking Elasticities: Married Female Labor Supply, 1978–2002," Journal of Human Resources, University of Wisconsin Press, vol. 42(4).
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