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Is the Collective Model of Labor Supply Useful for Tax Policy Analysis? A Simulation Exercise

  • Olivier Bargain
  • Nicolas Moreau

The literature on household behavior contains hardly any empirical research on the withinhousehold distributional effect of tax-benefit policies. We simulate this effect in the framework of a collective model of labor supply when shifting from a joint to an individual taxation system in France. We show that the net-of-tax relative earning potential of the wife is a significant determinant of intrahousehold negotiation but with very low elasticity. Consequently, the labor supply responses to the reform are entirely driven by the traditional substitution and income effects as in a unitary model. For some households only, the reform alters the intrahousehold distribution in a way that tends to change normative conclusions. A sensitivity analysis shows that the collective model would be required if the tax reform was both radical and of extended scope.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1052.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_1052
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