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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 within-household 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 DELTA (Ecole normale supérieure) in its series DELTA Working Papers with number 2002-21.

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Date of creation: 2002
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Handle: RePEc:del:abcdef:2002-21
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