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A Structural Estimation of the CES Preferences and Linear Labor Supply: The Case of Prime-Age Males in Japan

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  • Bessho, Shun-ichiro
  • Hayashi, Masayoshi

Abstract

The tax simulation studies in Japan have necessarily relied on arbitrary sets of preference parameters due to the paucity of the empirical estimates. Motivated by this state of the art, we estimate the labor supply function and preference parameters for Japanese prime-age males, allowing for the complex Japanese income tax system and taking advantage of a large microdata set we obtained for this study. We employ two versions of the method of maximum likelihood. One is the celebrated Hausman method which assumes a linear labor supply function (Hausman 1979). The other is the method proposed by Zabalza (1983), which takes advantage of an explicit specification of the CES preferences. We have examined several estimation patterns and calculated elasticities over the whole or sub-samples of observations. While the sample averages of uncompensated elasticities are estimated between 0.06 -- 0.21, those of compensated counterparts result in higher ranges (0.08 -- 1.39) due to rather large negative estimates for the income effects. It may be interesting to point out that the compensated elasticities tend to be higher in the CES case (0.41 -- 1.39) than the Hausman case (0.08 -- 1.12) despite the fact that the former is immune from the MaCurdy critique (MaCurdy et al. 1990).

Suggested Citation

  • Bessho, Shun-ichiro & Hayashi, Masayoshi, 2008. "A Structural Estimation of the CES Preferences and Linear Labor Supply: The Case of Prime-Age Males in Japan," Discussion Papers 2008-02, Graduate School of Economics, Hitotsubashi University.
  • Handle: RePEc:hit:econdp:2008-02
    Note: March 18, 2008, This paper is a revised version of the earlier drafts titled "The CES Utility Function, Non-linear Budget Constraints and Labor Supply: Results on Prime-age Males in Japan" (PRI Discussion Paper Series 05A-15).
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    Cited by:

    1. Bessho, Shun-ichiro & Hayashi, Masayoshi, 2014. "Intensive margins, extensive margins, and spousal allowances in the Japanese system of personal income taxes: A discrete choice analysis," Journal of the Japanese and International Economies, Elsevier, vol. 34(C), pages 162-178.
    2. Shigeki Kunieda, 2009. "Working Hours and Taxation," Japanese Economy, Taylor & Francis Journals, vol. 36(2), pages 3-22.
    3. Shun-ichiro Bessho & Masayoshi Hayashi, 2015. "Should the Japanese tax system be more progressive? An evaluation using the simulated SMCFs based on the discrete choice model of labor supply," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(1), pages 144-175, February.
    4. ZHAO Meng (KONISHI Moe), 2017. "Health-Related Income Gaps and the Effectiveness of Redistributive Policies in Japan," Discussion papers 17039, Research Institute of Economy, Trade and Industry (RIETI).

    More about this item

    Keywords

    personal income taxes; pice-wise linear budget constraint; labor supply;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • 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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