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Joint Labour Supply of Married Couples: Efficiency and Distribution Effects of Tax and Labour Market Reforms

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Author Info

  • Rolf Aaberge

    (Research Department, Statistics Norway, Oslo, Norway)

  • Ugo Colombino

    (Department of Economics, University of Turin, Italy)

  • Steinar Strøm

    (Department of Economics, University of Oslo, Norway)

  • Tom Wennemo

    (Research Department, Statistics Norway, Oslo, Norway)

Abstract

The paper presents a model of household labour supply that allows for simultaneous decisions of household members, complex and non-convex choice sets induced by tax and benefit rules, and quantity constraints on hours choice. The model is estimated using the 1993 Bank of Italy’s Survey of Household Income and Wealth, and used to simulate three hypothetical tax reforms: namely, a flat tax and two versions of a negative income tax system, under the constraint of equal tax revenue. All the reforms produce a larger household average disposable income, without worsening much the equality of the income distribution, and are supported by a majority of winners in the sample, although the proportion of winners varies considerably across income deciles. We also simulate the impact on labour supply and income of removing the quantity constraints on hours-wage packages available on the market, constraints that in Italy typically make full-time jobs more easily available than other jobs. The results show a considerable increase in participation among women belonging to relatively poor households, and a slight reductions in hours worked – given participation – across all households.

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File URL: http://128.118.178.162/eps/lab/papers/0501/0501004.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Labor and Demography with number 0501004.

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Length: 24 pages
Date of creation: 07 Jan 2005
Date of revision:
Handle: RePEc:wpa:wuwpla:0501004

Note: Type of Document - pdf; pages: 24. PDF document
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Web page: http://128.118.178.162

Related research

Keywords: Tax reforms; Labour supply; Microeconometric models;

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References

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  1. Hausman, Jerry A, 1985. "The Econometrics of Nonlinear Budget Sets," Econometrica, Econometric Society, vol. 53(6), pages 1255-82, November.
  2. William T. Dickens & Shelly J. Lundberg, 1985. "Hours Restrictions and Labor Supply," NBER Working Papers 1638, National Bureau of Economic Research, Inc.
  3. Ham, John C, 1982. "Estimation of a Labour Supply Model with Censoring Due to Unemployment and Underemployment," Review of Economic Studies, Wiley Blackwell, vol. 49(3), pages 335-54, July.
  4. Aaberge, Rolf & Dagsvik, John K & Strom, Steinar, 1995. " Labor Supply Responses and Welfare Effects of Tax Reforms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 635-59, December.
  5. Aaberge, Rolf & Colombino, Ugo & Strom, Steinar, 1999. "Labour Supply in Italy: An Empirical Analysis of Joint Household Decisions, with Taxes and Quantity Constraints," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(4), pages 403-22, July-Aug..
  6. Bourguignon, F. & O'Donoghue, C. & Sastre-Descals, J. & Spadaro, A. & Utili, F., 1997. "Eur 3: A Prototype European Tax-Benefit Model," DELTA Working Papers 97-30, DELTA (Ecole normale supérieure).
  7. Arrufat, Jose Luis & Zabalza, Antonio, 1986. "Female Labor Supply with Taxation, Random Preferences, and Optimization Errors," Econometrica, Econometric Society, vol. 54(1), pages 47-63, January.
  8. Aaberge, R. & Colombino, U. & Strom, S. & Wennemo, T., 1998. "Evaluating alternative tax reforms in Italy with a model of joint labor supply of married couples," Structural Change and Economic Dynamics, Elsevier, vol. 9(4), pages 415-433, December.
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  12. Dagsvik, John K, 1994. "Discrete and Continuous Choice, Max-Stable Processes, and Independence from Irrelevant Attributes," Econometrica, Econometric Society, vol. 62(5), pages 1179-1205, September.
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  14. Ilmakunnas, Seija & Pudney, Stephen, 1990. "A model of female labour supply in the presence of hours restrictions," Journal of Public Economics, Elsevier, vol. 41(2), pages 183-210, March.
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  16. Heckman, James J, 1974. "Shadow Prices, Market Wages, and Labor Supply," Econometrica, Econometric Society, vol. 42(4), pages 679-94, July.
  17. Colombino, Ugo, 1998. "Evaluating the effects of new telephone tariffs on residential users' demand and welfare. A model for Italy," Information Economics and Policy, Elsevier, vol. 10(3), pages 283-303, September.
  18. Rolf Aaberge & Ugo Colombino, 1998. "Social Evaluation of Individual Welfare Effects from Income Taxation Empirical Evidence Based on Italian Data for Married Couples," Discussion Papers 230, Research Department of Statistics Norway.
  19. Blomquist, N. Soren, 1983. "The effect of income taxation on the labor supply of married men in Sweden," Journal of Public Economics, Elsevier, vol. 22(2), pages 169-197, November.
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  22. Daniel McFadden, 1977. "Modelling the Choice of Residential Location," Cowles Foundation Discussion Papers 477, Cowles Foundation for Research in Economics, Yale University.
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Citations

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Cited by:
  1. Rolf Aaberge & Ugo Colombino, 2008. "Designing Optimal Taxes with a Microeconometric Model of Household Labour Supply," ICER Working Papers 19-2008, ICER - International Centre for Economic Research.
  2. Ugo Colombino & R. Aaberge & T. Wennemo, 2006. "Evaluating Alternative Representations of the Choice Sets in Models of Labour Supply," CHILD Working Papers wp17_06, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
  3. 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.
  4. Ugo Colombino & Marilena Locatelli & Edlira Narazani & Cathal O’Donoghue & Isilda Shima, 2008. "Behavioural and Welfare Effects of Basic Income Policies: A Simulation for European Countries," CHILD Working Papers wp03_08, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
  5. Rolf Aaberge & Ugo Colombino, 2005. "A microeconometric model for analysing efficiency and distributional effects of tax reforms: a review of results for Italy and Norwayƒx," Public Economics 0501002, EconWPA.

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