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Identifying Interdependent Behaviour in an Empirical Model of Labour Supply

  • Aronsson, Thomas
  • Blomquist, Soren
  • Sacklen, Hans

In this paper we test a particular form of interdependent behaviour, namely the hypothesis that individuals' choices of hours of work are influenced by the average hours of work in a social reference group. There are problems in empirically disentangling the effects of interdependent behaviour and preference variation across groups. We show that panel data or data from several points in time are needed. In the empirical analysis we combine cross-section data from 1973, 1980, and 1990. Our results support the hypothesis of interdependent behaviour. The implication is that conventional tax policy predictions, in which preference interdependencies are neglected, will tend to underestimate the effect of a tax reform on hours of work. Our point estimates suggest that conventional calculations would capture only about a third of the actual change in hours of work.

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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 14 (1999)
Issue (Month): 6 (Nov.-Dec.)
Pages: 607-26

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Handle: RePEc:jae:japmet:v:14:y:1999:i:6:p:607-26
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  1. repec:ner:tilbur:urn:nbn:nl:ui:12-364727 is not listed on IDEAS
  2. Blomquist, N. Soren, 1993. "Interdependent behavior and the effect of taxes," Journal of Public Economics, Elsevier, vol. 51(2), pages 211-218, June.
  3. Jerry A. Hausman, 1980. "The effect of wages, taxes, and fixed costs on women's labor force participation," NBER Chapters, in: Econometric Studies in Public Finance, pages 161-194 National Bureau of Economic Research, Inc.
  4. Thomas MaCurdy & David Green & Harry Paarsch, 1990. "Assessing Empirical Approaches for Analyzing Taxes and Labor Supply," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 415-490.
  5. Kapteyn, A. & Van De Ger, S. & Van De Stadt, H. & Wansbeek, T., 1989. "Interdependent Preferences: An Econometric Analysis," Papers 8954, Tilburg - Center for Economic Research.
  6. Woittiez, Isolde & Kapteyn, Arie, 1998. "Social interactions and habit formation in a model of female labour supply," Journal of Public Economics, Elsevier, vol. 70(2), pages 185-205, November.
  7. Beach, Charles M & MacKinnon, James G, 1978. "A Maximum Likelihood Procedure for Regression with Autocorrelated Errors," Econometrica, Econometric Society, vol. 46(1), pages 51-58, January.
  8. Manski, C.F., 1991. "Identification of Endogenous Social Effects: the Reflection Problem," Working papers 9127, Wisconsin Madison - Social Systems.
  9. Alessie, Rob & Kapteyn, Arie, 1991. "Habit Formation, Interdependent References and Demographic Effects in the Almost Ideal Demand System," Economic Journal, Royal Economic Society, vol. 101(406), pages 404-19, May.
  10. N. S. Blomquist & U. Hansson-Brusewitz, 1990. "The Effect of Taxes on Male and Female Labor Supply in Sweden," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 317-357.
  11. Hausman, Jerry A., 1979. "The econometrics of labor supply on convex budget sets," Economics Letters, Elsevier, vol. 3(2), pages 171-174.
  12. repec:ner:tilbur:urn:nbn:nl:ui:12-74366 is not listed on IDEAS
  13. Andreoni, James & Scholz, John Karl, 1998. "An Econometric Analysis of Charitable Giving with Interdependent Preferences," Economic Inquiry, Western Economic Association International, vol. 36(3), pages 410-28, July.
  14. Kapteyn, A. & van der Geer, S. & van de Stadt, H. & Wansbeek, T., 1997. "Interdependent preferences : An econometric analysis," Other publications TiSEM cd68dbcd-ca9b-45bf-9ae2-b, Tilburg University, School of Economics and Management.
  15. 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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