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Discrete choice modelling of labour supply in Luxembourg through EUROMOD microsimulation

  • Berger, Frederic
  • Islam, Nizamul
  • Liégeois, Philippe

In this study, the household labour supply is modelled as a discrete choice problem assuming that preference for leisure and consumption can be described by a quadratic utility function which allows for non-convexities in the budget set. We assess behavioural responses to the significant changes in the tax-benefit system during 2001-2002 in Luxembourg. Only moderate impact is found, on average, on the efficiency of the economy as measured by the labour supply effects. The impact is indeed concentrated on richer single women. These increase significantly their labour force, which more than doubles the non-behavioural effect of the tax reform on disposable income and boosts the gains in well-being for that part of population.

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File URL: https://www.iser.essex.ac.uk/research/publications/working-papers/euromod/em5-10.pdf
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Paper provided by EUROMOD at the Institute for Social and Economic Research in its series EUROMOD Working Papers with number EM5/10.

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Date of creation: 01 Aug 2010
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Publication status: published
Handle: RePEc:ese:emodwp:em5-10
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  1. Burtless, Gary & Hausman, Jerry A, 1978. "The Effect of Taxation on Labor Supply: Evaluating the Gary Negative Income Tax Experiments," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 1103-30, December.
  2. José M. Labeaga & Xisco Oliver & Amadéo Spadaro, 2005. "Discrete choice models of labour suppluy, behavioural microsimulation and the Spanish tax reform," PSE Working Papers halshs-00590836, HAL.
  3. Flood, Lennart & Hansen, Jörgen & Wahlberg, Roger, 2003. "Household Labor Supply and Welfare Participation in Sweden," IZA Discussion Papers 769, Institute for the Study of Labor (IZA).
  4. Thomas MaCurdy & David Green & Harry Paarsch, 1990. "Assessing Empirical Approaches for Analyzing Taxes and Labor Supply," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 415-490.
  5. Richard Blundell & Alan Duncan & Julian McCrae & Costas Meghir, 2000. "The labour market impact of the working families’ tax credit," Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 75-103, March.
  6. Hansen, Jörgen & Löfström, Magnus, 2001. "The Dynamics of Immigrant Welfare and Labour Market Behaviour," CEPR Discussion Papers 3028, C.E.P.R. Discussion Papers.
  7. M. Keane & R. Mofitt, 1995. "A Structural Model of Multiple Welfare Program Participation and Labor Supply," Working Papers 95-4, Brown University, Department of Economics.
  8. Bloemen, H.G. & Kapteyn, A.J., 1993. "The estimation of utility consistent labor supply models by means of simulated scores," Discussion Paper 1993-67, Tilburg University, Center for Economic Research.
  9. Euwals, R.W. & van Soest, A.H.O., 1996. "Desired and Actual Labour Supply of Unmarried Men and Women in the Netherlands," Discussion Paper 1996-23, Tilburg University, Center for Economic Research.
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