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Measuring Welfare Changes In Labour Supply Models

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  • JOHN CREEDY
  • GUYONNE KALB

Abstract

This paper examines the computation of welfare measures for use with labour supply models. The standard method of computing compensating and equivalent variations does not allow sufficiently for the nonlinearity of the budget constraint in such models. An alternative method is suggested and applied to contexts in which individuals are allowed to vary their hours continuously and to contexts where only a limited number of discrete hours of work are available. Discrete hours models have in recent years been used in view of the substantial econometric advantages when estimating the parameters of direct utility functions. This type of model is particularly popular in behavioural microsimulation modelling where predicted labour supply responses are calculated for policy changes. Copyright Blackwell Publishing Ltd and The University of Manchester, 2005.

Suggested Citation

  • John Creedy & Guyonne Kalb, 2005. "Measuring Welfare Changes In Labour Supply Models," Manchester School, University of Manchester, vol. 73(6), pages 664-685, December.
  • Handle: RePEc:bla:manchs:v:73:y:2005:i:6:p:664-685
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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9957.2005.00471.x
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    References listed on IDEAS

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    1. Callan, T. & van Soest, A.H.O., 1994. "Family labour supply and taxes in Ireland," Discussion Paper 1994-26, Tilburg University, Center for Economic Research.
    2. Blundell,R. W. & Preston,Ian & Walker,Ian (ed.), 1994. "The Measurement of Household Welfare," Cambridge Books, Cambridge University Press, number 9780521451956.
    3. Johansson,Per-Olov, 1987. "The Economic Theory and Measurement of Environmental Benefits," Cambridge Books, Cambridge University Press, number 9780521348102.
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    Citations

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    Cited by:

    1. John Creedy & Nicolas Hérault†, 2011. "Decomposing Inequality and Social Welfare Changes : The Use of Alternative Welfare Metrics," Department of Economics - Working Papers Series 1121, The University of Melbourne.
    2. Creedy, John & Mok, Penny, 2017. "The Marginal welfare cost of personal income taxation in New Zealand," Working Paper Series 6557, Victoria University of Wellington, Chair in Public Finance.
    3. John Creedy & Nicolas Hérault & Guyonne Kalb, 2007. "Comparing Welfare Change Measures with Income Change Measures in Behavioural Policy Simulations," Melbourne Institute Working Paper Series wp2007n21, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    4. Peter C. Reiss & Matthew W. White, 2006. "Evaluating Welfare with Nonlinear Prices," NBER Working Papers 12370, National Bureau of Economic Research, Inc.
    5. John Creedy, 2009. "The Personal Income Tax Structure: Theory and Policy," Department of Economics - Working Papers Series 1063, The University of Melbourne.
    6. John Creedy & Nicolas Hérault & Guyonne Kalb, 2009. "Abolishing the Tax-Free Threshold in Australia: Simulating Alternative Reforms," Fiscal Studies, Institute for Fiscal Studies, vol. 30(2), pages 219-246, June.
    7. Stefan Boeters, 2013. "Optimal Tax Progressivity in Unionised Labour Markets: Simulation Results for Germany," Computational Economics, Springer;Society for Computational Economics, vol. 41(4), pages 447-474, April.
    8. John Creedy, 2010. "Personal Income Tax Structure: Theory and Policy," Chapters,in: Tax Reform in Open Economies, chapter 7 Edward Elgar Publishing.
    9. Eleonora Matteazzi & Martina Menon & Federico Perali, 2017. "The Collective Farm-household Model: Policy and Welfare Simulations," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 39(1), pages 111-153.
    10. John Creedy & Nicolas Hérault, 2009. "Optimal Marginal Income Tax Reforms: A Microsimulation Analysis," Melbourne Institute Working Paper Series wp2009n23, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    11. Keshab Bhattarai & John Whalley, 2009. "Redistributive Effects of Transfer Programmes in the United Kingdom," Economica, London School of Economics and Political Science, vol. 76(303), pages 413-431, July.
    12. Olivier Bargain, 2012. "Decomposition analysis of distributive policies using behavioural simulations," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(5), pages 708-731, October.
    13. Boeters, Stefan & Savard, Luc, 2013. "The Labor Market in Computable General Equilibrium Models," Handbook of Computable General Equilibrium Modeling, Elsevier.

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