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Family Labour Supply and Taxes in Ireland

  • Tim Callan

    (Economic and Social Research Institute (ESRI))

  • Arthur Van Soest

    (Tilburg University, The Netherlands)

We analyse the labour supply of husband and wife in Irish families. A static structural model used. Account is taken of nonlinearities and non-convexities in tax-benefit system, of fixed costs of working, of unobserved preference variation across families, of prediction errors in wages of non-workers and of potential endogeneity of gross wage rates. Moreover the neoclassical model is extended such that information on involuntary unemployment is incorporated in a structural way. Smooth simulated maximum likelihood is used to estimate the model, using household data from 1997. The Irish tax system is characterized by ?income splitting? so that the tax liability of the couple depends essentially on the joint income of husband and wife. We analyse the sensitivity of husbands? and wives? labour supply with respect to the own wage, the partner's wage, and other income. We compare labour supply under the actual tax regime and under alternatives involving more independent taxation, and analyse the extent to which the tax system can explain the low participation of married women in Ireland.

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File URL: http://www.esri.ie/UserFiles/publications/20071011132239/WP078.pdf
File Function: First version, 1996
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Paper provided by Economic and Social Research Institute (ESRI) in its series Papers with number WP078.

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Length: 25 pages
Date of creation: Oct 1996
Date of revision:
Handle: RePEc:esr:wpaper:wp078
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  1. Kapteyn, Arie & Kooreman, Peter & van Soest, Arthur, 1990. "Quantity Rationing and Concavity in a Flexible Household Labor Supply Model," The Review of Economics and Statistics, MIT Press, vol. 72(1), pages 55-62, February.
  2. Kapteyn, A. & Soest, A.V. & Woittiez, I., 1989. "Labour Supply, Income Taxes And Hours Restrictions In The Netherlands," Papers 8903, Tilburg - Center for Economic Research.
  3. Gourieroux, Christian & Monfort, Alain, 1993. "Simulation-based inference : A survey with special reference to panel data models," Journal of Econometrics, Elsevier, vol. 59(1-2), pages 5-33, September.
  4. Hausman, Jerry & Ruud, Paul, 1984. "Family Labor Supply with Taxes," American Economic Review, American Economic Association, vol. 74(2), pages 242-48, May.
  5. Tim Callan, 1991. "Male-Female Wage Differentials in Ireland," Papers WP028, Economic and Social Research Institute (ESRI).
  6. Callan, T. & VAN Soest, A., 1993. "Female Labour Supply in Farm Households: Farm and Off-Farm Participation," Papers 9310, Tilburg - Center for Economic Research.
  7. van Soest, A.H.O. & Kooreman, P. & Kapteyn, A.J., 1990. "Coherency and regularity of demand systems with equality and inequality constraints," Discussion Paper 1990-1, Tilburg University, Center for Economic Research.
  8. Blundell, Richard William & Ham, John & Meghir, Costas, 1987. "Unemployment and Female Labour Supply," CEPR Discussion Papers 149, C.E.P.R. Discussion Papers.
  9. Hausman, Jerry A, 1985. "The Econometrics of Nonlinear Budget Sets," Econometrica, Econometric Society, vol. 53(6), pages 1255-82, November.
  10. Moffitt, Robert, 1984. "The Estimation of a Joint Wage-Hours Labor Supply Model," Journal of Labor Economics, University of Chicago Press, vol. 2(4), pages 550-66, October.
  11. Callan, Tim & Nolan, Brian & Whelan, Brendan J. & Hannan, Damian F. & Creighton, S., 1989. "Poverty, Income and Welfare in Ireland," Research Series, Economic and Social Research Institute (ESRI), number GRS146.
  12. Dickens, William T & Lundberg, Shelly J, 1993. "Hours Restrictions and Labor Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 169-92, February.
  13. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  14. Ransom, Michael R, 1987. "An Empirical Model of Discrete and Continuous Choice in Family Labor Supply," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 465-72, August.
  15. Blundell, Richard & Walker, Ian, 1986. "A Life-Cycle Consistent Empirical Model of Family Labour Supply Using Cross-Section Data," Review of Economic Studies, Wiley Blackwell, vol. 53(4), pages 539-58, August.
  16. Blomquist, N. Soren, 1988. "Nonlinear taxes and labor supply," European Economic Review, Elsevier, vol. 32(6), pages 1213-1226, July.
  17. 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.
  18. Killingsworth, Mark R. & Heckman, James J., 1987. "Female labor supply: A survey," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 2, pages 103-204 Elsevier.
  19. van Soest, A.H.O. & Woittiez, I.B. & Kapteyn, A.J., 1989. "Labour supply, income taxes and hours restrictions in the Netherlands," Discussion Paper 1989-3, Tilburg University, Center for Economic Research.
  20. Stern, Steven, 1992. "A Method for Smoothing Simulated Moments of Discrete Probabilities in Multinomial Probit Models," Econometrica, Econometric Society, vol. 60(4), pages 943-52, July.
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