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Structural Estimation of Family Labor Supply with Taxes: Estimating a Continuous Hours Model Using a Direct Utility Specification

  • Bradley T. Heim

This paper proposes a new method for estimating family labor supply in the presence of taxes. This method accounts for continuous hours choices, measurement error, unobserved heterogeneity in tastes for work, the nonlinear form of the tax code, and fixed costs of work in one comprehensive specification. Estimated on data from the 2001 PSID, the resulting elasticities for married males are consistent with those found elsewhere in the literature but female wage elasticities are substantially smaller than those found in most of the literature. Simulations of recent tax acts predict small effects on the labor supply of married couples.

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File URL: http://jhr.uwpress.org/cgi/reprint/44/2/350
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Article provided by University of Wisconsin Press in its journal Journal of Human Resources.

Volume (Year): 44 (2009)
Issue (Month): 2 ()
Pages:

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Handle: RePEc:uwp:jhriss:v:44:y:2009:i2:p350-385
Contact details of provider: Web page: http://jhr.uwpress.org/

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  1. Hausman, Jerry A., 1980. "The effect of wages, taxes, and fixed costs on women's labor force participation," Journal of Public Economics, Elsevier, vol. 14(2), pages 161-194, October.
  2. Kapteyn, Arie & Kooreman, Peter & van Soest, Arthur, 1990. "Quantity Rationing and Concavity in a Flexible Household Labor Supply Model," The Review of Economics and Statistics, MIT Press, vol. 72(1), pages 55-62, February.
  3. Kimmel, Jean & Kniesner, Thomas J., 1998. "New evidence on labor supply:: Employment versus hours elasticities by sex and marital status," Journal of Monetary Economics, Elsevier, vol. 42(2), pages 289-301, July.
  4. Gale, William G. & Potter, Samara R., 2002. "An Economic Evaluation of the Economic Growth and Tax Relief Reconciliation Act of 2001," National Tax Journal, National Tax Association, vol. 55(N. 1), pages 133-186, March.
  5. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, June.
  6. Butler, J S & Moffitt, Robert, 1982. "A Computationally Efficient Quadrature Procedure for the One-Factor Multinomial Probit Model," Econometrica, Econometric Society, vol. 50(3), pages 761-64, May.
  7. Anil Kumar, 2005. "Lifecycle consistent estimation of effect of taxes on female labor supply in the US: evidence from panel data," Working Papers 0504, Federal Reserve Bank of Dallas.
  8. George J. Borjas, 1980. "The Relationship between Wages and Weekly Hours of Work: The Role of Division Bias," Journal of Human Resources, University of Wisconsin Press, vol. 15(3), pages 409-423.
  9. Robert K. Triest, 1990. "The Effect of Income Taxation on Labor Supply in the United States," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 491-516.
  10. Bradley T. Heim, 2007. "The Incredible Shrinking Elasticities: Married Female Labor Supply, 1978–2002," Journal of Human Resources, University of Wisconsin Press, vol. 42(4).
  11. Blundell, Richard & Walker, Ian, 1986. "A Life-Cycle Consistent Empirical Model of Family Labour Supply Using Cross-Section Data," Review of Economic Studies, Wiley Blackwell, vol. 53(4), pages 539-58, August.
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