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

  • José Labeaga

    ()

  • Xisco Oliver

    ()

  • Amedeo Spadaro

    ()

The aim of the present study is to show the potential of behavioural microsimulation models as powerful tools for the ex ante evaluation of public policies. We analyse the impact of recent Spanish income tax reforms upon efficiency and household and social welfare and study the effects of various (basic-income and vital-minimum) flat tax schemes. The analysis is performed using a microsimulation model in which labour supply is explicitly taken into account. Instead of following the traditional continuous approach (Hausman, Labour supply, Aaron and Pechman (eds.), How Taxes Affect Economic Behaviour, The Brooking Institution, Washington, DC, 1981; Econometrica, 53: 1255-1282, 1985; Taxes and labour supply, Auerbach and Feldstein, (eds.), Handbook of Public Economics, North-Holland, Amsterdam, vol. 1, 1979), we estimate the direct utility function employing the methodology proposed by Aaberge et al. (Scand. J. Econ., 97: 635-659, 1995) and Van Soest (J. Hum. Resour., 30: 63-88, 1995). We maintain population heterogeneity by applying a social welfare analysis to the complete sample, rather than merely focusing on the active population. The source of our data is a sample of Spanish individuals in the 1995 wave of the EC Household Panel. We find that the redistribution policies considered have only had a minor impact on economic efficiency but, by contrast, have significantly affected social welfare.

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File URL: http://hdl.handle.net/10.1007/s10888-007-9057-9
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Article provided by Springer in its journal The Journal of Economic Inequality.

Volume (Year): 6 (2008)
Issue (Month): 3 (September)
Pages: 247-273

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Handle: RePEc:kap:jecinq:v:6:y:2008:i:3:p:247-273
Contact details of provider: Web page: http://springerlink.metapress.com/link.asp?id=111137

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  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.
  25. E. Paul Durrenberger, 2005. "Labour," Chapters, in: A Handbook of Economic Anthropology, chapter 8 Edward Elgar Publishing.
  26. José M. Labeaga & Xisco Oliver & Amadéo Spadaro, 2008. "Discrete choice models of labour supply, behavioural microsimulation and the Spanish tax reforms," Post-Print halshs-00754269, HAL.
  27. 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.
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