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A Structural Approach to Estimating the Effect of Taxation on the Labor Market Dynamics of Older Workers

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  • Peter Haan
  • Victoria Prowse

Abstract

We estimate a dynamic structural life-cycle model of employment, non-employment and retirement that includes endogenous accumulation of human capital and intertemporal non- separabilities in preferences. Additionally, the model accounts for the effect of the tax and transfer system on work incentives. The structural parameter estimates are used to evaluate the effects of a tax reform targeted at low income individuals on employment behavior and retirement decisions.

Suggested Citation

  • Peter Haan & Victoria Prowse, 2009. "A Structural Approach to Estimating the Effect of Taxation on the Labor Market Dynamics of Older Workers," Discussion Papers of DIW Berlin 877, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp877
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    References listed on IDEAS

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    1. Paul Frijters & Bas van der Klaauw, 2006. "Job Search with Nonparticipation," Economic Journal, Royal Economic Society, vol. 116(508), pages 45-83, January.
    2. Hamish Low & Costas Meghir & Luigi Pistaferri, 2010. "Wage Risk and Employment Risk over the Life Cycle," American Economic Review, American Economic Association, vol. 100(4), pages 1432-1467, September.
    3. Jeffrey M. Wooldridge, 2005. "Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(1), pages 39-54.
    4. Peter Haan & Victoria Prowse & Arne Uhlendorff, 2008. "Employment effects of welfare reforms: Evidence from a dynamic structural life-cycle model," PSE Working Papers halshs-00586748, HAL.
    5. John Rust & Christopher Phelan, 1997. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Econometrica, Econometric Society, vol. 65(4), pages 781-832, July.
    6. Zvi Eckstein & Kenneth I. Wolpin, 1989. "The Specification and Estimation of Dynamic Stochastic Discrete Choice Models: A Survey," Journal of Human Resources, University of Wisconsin Press, vol. 24(4), pages 562-598.
    7. Anders Karlstrom & Marten Palme & Ingemar Svensson, 2004. "A dynamic programming approach to model the retirement behaviour of blue-collar workers in Sweden," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(6), pages 795-807.
    8. Blundell, Richard, 2000. "Work Incentives and 'In-Work' Benefit Reforms: A Review," Oxford Review of Economic Policy, Oxford University Press, vol. 16(1), pages 27-44, Spring.
    9. Rebecca M. Blank, 2002. "Evaluating Welfare Reform in the United States," Journal of Economic Literature, American Economic Association, vol. 40(4), pages 1105-1166, December.
    10. Wolpin, Kenneth I, 1992. "The Determinants of Black-White Differences in Early Employment Careers: Search, Layoffs, Quits, and Endogenous Wage Growth," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 535-560, June.
    11. Adda, Jérôme & Costa Dias, Mònica & Meghir, Costas & Sianesi, Barbara, 2007. "Labour market programmes and labour market outcomes: a study of the Swedish active labour market interventions," Working Paper Series 2007:27, IFAU - Institute for Evaluation of Labour Market and Education Policy.
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    Citations

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    Cited by:

    1. Marco Caliendo & Frank Fossen & Alexander Kritikos, 2014. "Personality characteristics and the decisions to become and stay self-employed," Small Business Economics, Springer, vol. 42(4), pages 787-814, April.
    2. Maria Rosaria Marino & Marzia Romanelli & Martino Tasso, 2016. "Women at work: the impact of welfare and fiscal policies in a dynamic labor supply model," Temi di discussione (Economic working papers) 1084, Bank of Italy, Economic Research and International Relations Area.
    3. Haan, Peter & Prowse, Victoria L., 2010. "The Design of Unemployment Transfers: Evidence from a Dynamic Structural Life-Cycle Model," IZA Discussion Papers 4792, Institute for the Study of Labor (IZA).
    4. Holger Bonin & Reinhold Schnabel & Holger Stichnoth, 2014. "Zur Effizienz der ehe- und familienbezogenen Leistungen in Deutschland im Hinblick auf soziale Sicherungs- und Beschäftigungsziele," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 83(1), pages 29-48.
    5. Irina Merkurieva, 2016. "Late Career Job Loss and the Decision to Retire," Discussion Paper Series, Department of Economics 201606, Department of Economics, University of St. Andrews.

    More about this item

    Keywords

    Life-cycle labor supply; income taxation;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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