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Discrete choice models of labour suppluy, behavioural microsimulation and the Spanish tax reform

  • José M. Labeaga

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

  • Xisco Oliver

    (Universitat de les Illes Balears - Universitat de les Illes Balears)

  • Amadéo Spadaro

    (Universitat de les Illes Balears - Universitat de les Illes Balears, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris)

In this paper, we demonstrate the potential of behavioural microsimulation models as powerful tools for the ex ante evaluation of public policies. The subject of our analysis is the impact of recent Spanish Income Tax reforms on efficiency and household and social welfare. We also analyze the likely effects of some basic income - flat tax and vital minimum - flat tax schemes. The analysis is carried out using a microsimulation model in which labour supply is explicitly taken into account. Instead of following the traditional continuous approach (Hausman 1981, 1985a, and 1985b), we estimate the direct utility function using the methodology proposed by Van Soest (1995). Our data come from a sample of Spanish individuals in the 1995 wave of the EC Household Panel. We show that in the Spanish case, the redistribution policies considered have only little impact on the efficiency of the economy. On the contrary, they strongly affect social welfare.

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Paper provided by HAL in its series PSE Working Papers with number halshs-00590836.

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Date of creation: Jun 2005
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Handle: RePEc:hal:psewpa:halshs-00590836
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