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The CES utility function, non-linear budget constraints and labor supply : results on prime-age males in Japan

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  • Shun-ichiro Bessho

    (MOF, Japan)

  • Masayoshi Hayashi

Abstract

When the labour supply is elastic with respect to the net wage, labour income taxation generates economic distortion and welfare loss. The substitute effect is a key determinant of the magnitude of such deadweight loss; thus, evaluating the elasticity of the labour supply has broad and significant implications for assessing the effects of changes in public policy. We estimate the labout supply function based on the CES utility function, using large microdata sets in Japan and treating the complex Japanese income tax system carefully. The results of this chapter suggest that the uncompensated elasticity of the labour supply of prime-age males is at most 0.1.

Suggested Citation

  • Shun-ichiro Bessho & Masayoshi Hayashi, 2005. "The CES utility function, non-linear budget constraints and labor supply : results on prime-age males in Japan," Labor Economics Working Papers 21911, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:laborw:21911
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    Cited by:

    1. Shun-ichiro Bessho & Masayoshi Hayashi, 2011. "Should Japanese Tax System Be More Progressive?," Global COE Hi-Stat Discussion Paper Series gd10-181, Institute of Economic Research, Hitotsubashi University.
    2. Bessho, Shun-ichiro & Hayashi, Masayoshi, 2014. "Intensive margins, extensive margins, and spousal allowances in the Japanese system of personal income taxes: A discrete choice analysis," Journal of the Japanese and International Economies, Elsevier, pages 162-178.
    3. ZHAO Meng (KONISHI Moe), 2017. "Health-Related Income Gaps and the Effectiveness of Redistributive Policies in Japan," Discussion papers 17039, Research Institute of Economy, Trade and Industry (RIETI).
    4. Shigeki Kunieda, 2009. "Working Hours and Taxation," Japanese Economy, Taylor & Francis Journals, pages 3-22.
    5. Shun-ichiro Bessho & Masayoshi Hayashi, 2015. "Should the Japanese tax system be more progressive? An evaluation using the simulated SMCFs based on the discrete choice model of labor supply," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(1), pages 144-175, February.
    6. Bessho, Shun-ichiro & Hayashi, Masayoshi, 2014. "Intensive margins, extensive margins, and spousal allowances in the Japanese system of personal income taxes: A discrete choice analysis," Journal of the Japanese and International Economies, Elsevier, pages 162-178.

    More about this item

    Keywords

    piecewise linear budget constraint; labor supply; CES utility function;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence

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