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Lifecycle consistent estimation of effect of taxes on female labor supply in the US: evidence from panel data


  • Kumar, Anil

    () (Federal Reserve Bank of Dallas)


Very few existing studies have estimated female labor supply elasticities using a U.S. panel data set, though cross-sectional studies abound. Also, most existing studies have modeled female labor supply in the U.S. in a static framework. I make an attempt to fill the gap in this literature, by estimating a lifecycle-consistent specification with taxes, in a limited dependent variable framework, on a panel of married females from the PSID. Both parametric random effects and semiparametric fixed effects methods are applied. The estimate of compensated elasticity for females in the sample is 0.63 (with a standard error of 0.14). These estimates are fairly robust to the choice of both random effects and semiparametric fixed effect estimators and also to the choice of instruments for the endogenous net wage and virtual full income. I estimate exact deadweight loss from taxes and find that deadweight loss from a 20 percent increase in the marginal tax rate is about 18 percent of tax revenue collected, evaluated at the sample mean.

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  • Kumar, Anil, 2005. "Lifecycle consistent estimation of effect of taxes on female labor supply in the US: evidence from panel data," Working Papers 0504, Federal Reserve Bank of Dallas.
  • Handle: RePEc:fip:feddwp:05-04 Note: Published as: Kumar, Anil (2016), "Lifecycle-Consistent Female Labor Supply with Nonlinear Taxes: Evidence from Unobserved Effects Panel Data Models with Censoring, Selection and Endogeneity," Review of Economics of the Household 14 (1): 207-229.

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    Cited by:

    1. Solomon W. Polachek & Jun Xiang, 2009. "The Gender Pay Gap across Countries: A Human Capital Approach," SOEPpapers on Multidisciplinary Panel Data Research 227, DIW Berlin, The German Socio-Economic Panel (SOEP).
    2. Marta González-Torrabadella & Josep Pijoan-Mas, 2006. "Flat tax reforms: a general equilibrium evaluation for Spain," Investigaciones Economicas, Fundación SEPI, vol. 30(2), pages 317-351, May.
    3. Bradley T. Heim, 2009. "Structural Estimation of Family Labor Supply with Taxes: Estimating a Continuous Hours Model Using a Direct Utility Specification," Journal of Human Resources, University of Wisconsin Press, vol. 44(2).

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    Labor supply; Women - Employment; Wages;

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