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Discrete choice models of labour supply, behavioural microsimulation and the Spanish tax reform

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José M. Labeaga
Xisco Oliver
Amedeo Spadaro

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Abstract

In this paper, we demonstrate the potential of behavioural microsimulation models as powerful tools for the ex ante evaluation of public policies. The subject of our analysis is the impact of recent Spanish Income Tax reforms on efficiency and household and social welfare. We also analyze the likely effects of some basic income - flat tax and vital minimum - flat tax schemes. The analysis is carried out using a microsimulation model in which labour supply is explicitly taken into account. Instead of following the traditional continuous approach (Hausman 1981, 1985a, and 1985b), we estimate the direct utility function using the methodology proposed by Van Soest (1995). Our data come from a sample of Spanish individuals in the 1995 wave of the EC Household Panel. We show that in the Spanish case, the redistribution policies considered have only little impact on the efficiency of the economy. On the contrary, they strongly affect social welfare.

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Paper provided by PSE (Ecole normale supérieure) in its series PSE Working Papers with number 2005-13.

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Date of creation: 2005
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Handle: RePEc:pse:psecon:2005-13

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bingley, Paul & Walker, Ian, 1997. "The Labour Supply, Unemployment and Participation of Lone Mothers in In-Work Transfer Programmes," Economic Journal, Royal Economic Society, vol. 107(444), pages 1375-90, September. [Downloadable!] (restricted)
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  3. Soest, A. van & Das, M., 2000. "Family labor supply and proposed tax reforms in the Netherlands," Discussion Paper 20, Tilburg University, Center for Economic Research. [Downloadable!]
  4. Aaberge, Rolf & Colombino, Ugo & Strøm, Steinar, 2003. "Do More Equal Slices Shrink the Cake? An Empirical Investigation of Tax-Transfer Reform Proposals in Italy," Memorandum 37/2003, Oslo University, Department of Economics. [Downloadable!]
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  5. Keane, Michael & Moffitt, Robert, 1998. "A Structural Model of Multiple Welfare Program Participation and Labor Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 553-89, August.
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  6. José M. Labeaga, Xisco Oliver & Xisco Oliver & Amedeo Spadaro, . "Discrete choice models of labour Supply, behavioural microsimulation and the Spanish tax reforms," Working Papers 2005-14, FEDEA. [Downloadable!]
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  7. Hausman, Jerry A, 1985. "The Econometrics of Nonlinear Budget Sets," Econometrica, Econometric Society, vol. 53(6), pages 1255-82, November. [Downloadable!] (restricted)
  8. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January. [Downloadable!] (restricted)
  9. Amedeo spadaro, 2003. "Micro-simulation and Normative Policy Evaluation: an Application to some EU Tax-Benefits System," DELTA Working Papers 2003-23, DELTA (Ecole normale supérieure). [Downloadable!]
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  10. François Bourguignon & Amedeo Spadaro, 2006. "Microsimulation as a tool for evaluating redistribution policies," Journal of Economic Inequality, Springer, vol. 4(1), pages 77-106, April. [Downloadable!] (restricted)
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  11. Jon Gruber & Emmanuel Saez, 2000. "The Elasticity of Taxable Income: Evidence and Implications," NBER Working Papers 7512, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Creedy, John & Duncan, Alan, 2002. " Behavioural Microsimulation with Labour Supply Responses," Journal of Economic Surveys, Blackwell Publishing, vol. 16(1), pages 1-39, February. [Downloadable!] (restricted)
  13. Gerald Auten & Robert Carroll, 1999. "The Effect Of Income Taxes On Household Income," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 681-693, November. [Downloadable!] (restricted)
  14. Richard Blundell & Alan Duncan & Julian McCrae & Costas Meghir, 2000. "The labour market impact of the working families’ tax credit," Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 75-103, March. [Downloadable!]
  15. Guyonne Kalb & Hsein Kew & Rosanna Scutella, 2005. "Effects of the Australian New Tax System on Income Tax and Benefits with and without Labour Supply Responses," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 38(2), pages 137-158, 06. [Downloadable!] (restricted)
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  19. Hilary Hoynes, 1993. "Welfare Transfers in Two-Parent Families: Labor Supply and Welfare Participation Under AFDC-UP," NBER Working Papers 4407, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  20. King, Mervyn A., 1983. "Welfare analysis of tax reforms using household data," Journal of Public Economics, Elsevier, vol. 21(2), pages 183-214, July. [Downloadable!] (restricted)
  21. Ugo Colombino & Rolf Aaberge & Tom Wennemo, 2005. "Evaluating Alternative Representations of the Choice Sets in Models of Labour Supply," Econometrics 0510001, EconWPA. [Downloadable!]
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  22. Stern, N. H., 1976. "On the specification of models of optimum income taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 123-162. [Downloadable!] (restricted)
  23. Arellano, M. & Bover, O. & Labeaga, J.M., 1997. "Autoregressive Models with Sample Selectivity for Panel Data," Papers 9706, Centro de Estudios Monetarios Y Financieros-.
  24. John Creedy & Guyonne Kalb & Hsein Kew, 2003. "Flattening the Effective Marginal Tax Rate Structure in Australia: Policy Simulations Using the Melbourne Institute Tax and Transfer Simulator," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 36(2), pages 156-172. [Downloadable!] (restricted)
  25. Rolf Aaberge, Ugo Colombino and Steinar Strøm, 1996. "Welfare Effects of Proportional Taxation: Empirical Evidence from Italy, Norway and Sweden," Discussion Papers 171, Research Department of Statistics Norway.
  26. MaCurdy, Thomas, 1992. "Work Disincentive Effects of Taxes: A Reexamination of Some Evidence," American Economic Review, American Economic Association, vol. 82(2), pages 243-49, May. [Downloadable!] (restricted)
  27. Macurdy, T. & Green, D. & Paarsch, H., 1990. "Assessing Empirical Approaches For Analyzing Taxes And Labor Supply," Papers e-90-11, Stanford - Hoover Institution.
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  1. Olivier Bargain & Amedeo Spadaro, 2008. "Optimal Taxation, Social Contract and the Four Worlds of Welfare Capitalism," Working Papers 200816, School Of Economics, University College Dublin. [Downloadable!]
  2. Pedro N. Rodríguez, & Simón Sosvilla-Rivero, 2006. "Understanding and Forecasting Stock Price Changes," Working Papers 2006-03, FEDEA. [Downloadable!]
  3. José Labeaga & Xisco Oliver & Amedeo Spadaro, 2008. "Discrete choice models of labour supply, behavioural microsimulation and the Spanish tax reforms," Journal of Economic Inequality, Springer, vol. 6(3), pages 247-273, September. [Downloadable!] (restricted)
    Other versions:
  4. Andrés J. Marchante Mera & Bienvenido Ortega Aguaza & José Sánchez Maldonado, 2006. "Las dimensiones del bienestar en las Comunidades Autónomas Españolas. Un análisis de Sigma y Gamma-Convergencia," Working Papers 2006-05, FEDEA. [Downloadable!]
  5. Amedeo Spadaro, 2008. "Optimal taxation, social contract and the four worlds of welfare capitalism," PSE Working Papers 2008-38, PSE (Ecole normale supérieure). [Downloadable!]
    Other versions:
  6. François Bourguignon & Amedeo Spadaro, 2006. "Microsimulation as a tool for evaluating redistribution policies," Journal of Economic Inequality, Springer, vol. 4(1), pages 77-106, April. [Downloadable!] (restricted)
    Other versions:
  7. Namkee Ahn, . "Life Satisfaction among Spanish Workers: Importance of Intangible Job Characteristics," Working Papers 2005-17, FEDEA. [Downloadable!]
  8. José M. Labeaga & Xisco Oliver & Amedeo Spadaro, . "Measuring Changes in Health Capital," Working Papers 2005-15, FEDEA. [Downloadable!]
  9. Aaberge, Rolf & Flood, Lennart, 2008. "Evaluation of an In-Work Tax Credit Reform in Sweden: Effects on Labor Supply and Welfare Participation of Single Mothers," IZA Discussion Papers 3736, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  10. Pacifico, Daniele, 2009. "A behavioral microsimulation model with discrete labour supply for Italian couples," MPRA Paper 14198, University Library of Munich, Germany. [Downloadable!]
  11. Clauss, Markus & Schnabel, Reinhold, 2008. "Distributional and behavioural effects of the German labour market reform," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 41(4), pages 431-446. [Downloadable!]
  12. Olivier Bargain, 2007. "On Modeling Household Labor Supply With Taxation," Working Papers 200711, School Of Economics, University College Dublin. [Downloadable!]
    Other versions:
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