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

  • José Labeaga

    ()

  • Xisco Oliver

    ()

  • Amedeo Spadaro

    ()

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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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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  1. Gruber, Jon & Saez, Emmanuel, 2002. "The elasticity of taxable income: evidence and implications," Journal of Public Economics, Elsevier, vol. 84(1), pages 1-32, April.
  2. Rolf Aaberge & Ugo Colombino & Steinar Strøm, 1996. "Welfare Effects of Proportional Taxation: Empirical Evidence from Italy, Norway and Sweden," Discussion Papers 171, Statistics Norway, Research Department.
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  8. Hoynes, Hilary Williamson, 1996. "Welfare Transfers in Two-Parent Families: Labor Supply and Welfare Participation under AFDC-UP," Econometrica, Econometric Society, vol. 64(2), pages 295-332, March.
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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.
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