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Discrete choice models of labour supply, behavioural microsimulation and the Spanish tax reforms

Author

Listed:
  • José M. Labeaga

    (FEDEA - Fundacion de estudios de economia aplicada - FEDEA, UNED - Universidad Nacional de Educacion a Distancia - UNED - Universidad Nacional de Educación a Distancia)

  • Xisco Oliver

    (UIB - Universitat de les Illes Balears = Universidad de las Islas Baleares = University of the Balearic Islands)

  • Amadéo Spadaro

    (UIB - Universitat de les Illes Balears = Universidad de las Islas Baleares = University of the Balearic Islands, PJSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

The aim of the present study is to show the potential of behavioural microsimulation models as powerful tools for the ex ante evaluation of public policies. We analyse the impact of recent Spanish income tax reforms upon efficiency and household and social welfare and study the effects of various (basic-income and vital-minimum) flat tax schemes. The analysis is performed using a microsimulation model in which labour supply is explicitly taken into account. Instead of following the traditional continuous approach (Hausman, Labour supply, Aaron and Pechman (eds.), How Taxes Affect Economic Behaviour, The Brooking Institution, Washington, DC, 1981; Econometrica, 53: 1255-1282, 1985; Taxes and labour supply, Auerbach and Feldstein, (eds.), Handbook of Public Economics, North-Holland, Amsterdam, vol. 1, 1979), we estimate the direct utility function employing the methodology proposed by Aaberge et al. (Scand. J. Econ., 97: 635-659, 1995) and Van Soest (J. Hum. Resour., 30: 63-88, 1995). We maintain population heterogeneity by applying a social welfare analysis to the complete sample, rather than merely focusing on the active population. The source of our data is a sample of Spanish individuals in the 1995 wave of the EC Household Panel. We find that the redistribution policies considered have only had a minor impact on economic efficiency but, by contrast, have significantly affected social welfare.

Suggested Citation

  • José M. Labeaga & Xisco Oliver & Amadéo Spadaro, 2008. "Discrete choice models of labour supply, behavioural microsimulation and the Spanish tax reforms," Post-Print halshs-00754269, HAL.
    • Handle: RePEc:hal:journl:halshs-00754269
    DOI: 10.1007/s10888-007-9057-9
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    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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