IDEAS home Printed from https://ideas.repec.org/p/hit/econdp/2008-02.html
   My bibliography  Save this paper

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

Author

Listed:
  • 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).
    as

    Download full text from publisher

    File URL: http://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/16950/070econDP08-02.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Henry Farber, 2003. "Is Tomorrow Another Day? The Labor Supply of New York Cab Drivers," NBER Working Papers 9706, National Bureau of Economic Research, Inc.
    2. Colin Camerer & Linda Babcock & George Loewenstein & Richard Thaler, 1997. "Labor Supply of New York City Cabdrivers: One Day at a Time," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 407-441.
    3. Hausman, Jerry A, 1985. "The Econometrics of Nonlinear Budget Sets," Econometrica, Econometric Society, vol. 53(6), pages 1255-1282, November.
    4. Homma, Masaaki & Ohtake, Fumio & Atoda, Naosumi & Iwamoto, Yasushi, 1985. "An Economic Analysis of the So-called I/D Ratio--Efficiency vs. Equity--," Economic Review, Hitotsubashi University, vol. 36(2), pages 97-109, April.
    5. Gruber, Jon & Saez, Emmanuel, 2002. "The elasticity of taxable income: evidence and implications," Journal of Public Economics, Elsevier, vol. 84(1), pages 1-32, April.
    6. Norman Gemmell & Oliver Morrissey & Abuzer Pinar, 2004. "Tax perceptions and preferences over tax structure in the united kingdom," Economic Journal, Royal Economic Society, vol. 114(493), pages 117-138, February.
    7. Burtless, Gary & Hausman, Jerry A, 1978. "The Effect of Taxation on Labor Supply: Evaluating the Gary Negative Income Tax Experiments," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 1103-1130, December.
    8. Blomquist, Soren, 1996. "Estimation methods for male labor supply functions How to take account of nonlinear taxes," Journal of Econometrics, Elsevier, vol. 70(2), pages 383-405, February.
    9. Keshab Bhattarai & John Whalley, 2003. "Discreteness and the Welfare Cost of Labor Supply Tax Distortions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(3), pages 1117-1133, August.
    10. Kuroda, Sachiko & Yamamoto, Isamu, 2008. "Estimating Frisch labor supply elasticity in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 22(4), pages 566-585, December.
    11. Raj Chetty & Emmanuel Saez & Laszlo Sandor, 2014. "What Policies Increase Prosocial Behavior? An Experiment with Referees at the Journal of Public Economics," Journal of Economic Perspectives, American Economic Association, vol. 28(3), pages 169-188, Summer.
    12. Richard Blundell & John Ham & Costas Meghir, 1989. "Unemployment and Female Labour Supply," Palgrave Macmillan Books, in: Joan Muysken & Chris Neubourg (ed.), Unemployment in Europe, chapter 1, pages 9-36, Palgrave Macmillan.
    13. Ericson, Peter & Flood, Lennart, 1997. "A Monte Carlo Evaluation of Labor Supply Models," Empirical Economics, Springer, vol. 22(3), pages 431-460.
    14. Hideo Akabayashi, 2006. "The labor supply of married women and spousal tax deductions in Japan—a structural estimation," Review of Economics of the Household, Springer, vol. 4(4), pages 349-378, December.
    15. Miles S. Kimball & Matthew D. Shapiro, 2008. "Labor Supply: Are the Income and Substitution Effects Both Large or Both Small?," NBER Working Papers 14208, National Bureau of Economic Research, Inc.
    16. Soren Blomquist & Whitney Newey, 2002. "Nonparametric Estimation with Nonlinear Budget Sets," Econometrica, Econometric Society, vol. 70(6), pages 2455-2480, November.
    17. Arrufat, Jose Luis & Zabalza, Antonio, 1986. "Female Labor Supply with Taxation, Random Preferences, and Optimization Errors," Econometrica, Econometric Society, vol. 54(1), pages 47-63, January.
    18. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695, Elsevier.
    19. repec:hoo:wpaper:e-90-11 is not listed on IDEAS
    20. Blundell, Richard & Ham, John & Meghir, Costas, 1987. "Unemployment and Female Labour Supply," Economic Journal, Royal Economic Society, vol. 97(388a), pages 44-64, Supplemen.
    21. Blomquist, Sören & Newey, Whitney, 1997. "Nonparametric Estimation of Labor Supply Functions Generated by Piece Wise Linear Budget Constraints," Working Paper Series 1997:24, Uppsala University, Department of Economics.
    22. Browning, Martin & Deaton, Angus & Irish, Margaret, 1985. "A Profitable Approach to Labor Supply and Commodity Demands over the Life-Cycle," Econometrica, Econometric Society, vol. 53(3), pages 503-543, May.
    23. Moffitt, Robert A., 2002. "Welfare programs and labor supply," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 34, pages 2393-2430, Elsevier.
    24. Henry S. Farber, 2003. "Is Tomorrow Another Day? The Labor Supply of New York City Cab Drivers," Working Papers 852, Princeton University, Department of Economics, Industrial Relations Section..
    25. James P. Ziliak & Thomas J. Kniesner, 1999. "Estimating Life Cycle Labor Supply Tax Effects," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 326-359, April.
    26. MaCurdy, Thomas E, 1981. "An Empirical Model of Labor Supply in a Life-Cycle Setting," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1059-1085, December.
    27. Yamada, Tadashi & Yamada, Tetsuji & Kang, J. Moonwon, 1999. "A study of time allocation of Japanese households," Japan and the World Economy, Elsevier, vol. 11(1), pages 41-55, January.
    28. Heckman, James J, 1993. "What Has Been Learned about Labor Supply in the Past Twenty Years?," American Economic Review, American Economic Association, vol. 83(2), pages 116-121, May.
    29. John Creedy & Guyonne Kalb, 2005. "Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation," Journal of Economic Surveys, Wiley Blackwell, vol. 19(5), pages 697-734, December.
    30. Brett, Craig, 1998. "Tax reform and collective family decision-making," Journal of Public Economics, Elsevier, vol. 70(3), pages 425-440, December.
    31. Chul-In Lee, 2001. "Finite Sample Bias In Iv Estimation Of Intertemporal Labor Supply Models: Is The Intertemporal Substitution Elasticity Really Small?," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 638-646, November.
    32. A. Zabalza & C. Pissarides & M. Barton, 1980. "Social Security and the Choice between Full-time Work, Part-time Work and Retirement," NBER Chapters, in: Econometric Studies in Public Finance, pages 245-276, National Bureau of Economic Research, Inc.
    33. Masayoshi Hayashi, 2009. "The Tax System and Labor Supply," Japanese Economy, Taylor & Francis Journals, vol. 36(1), pages 106-136.
    34. Kimmel, Jean & Kniesner, Thomas J., 1998. "New evidence on labor supply:: Employment versus hours elasticities by sex and marital status," Journal of Monetary Economics, Elsevier, vol. 42(2), pages 289-301, July.
    35. Hausman, Jerry A., 1979. "The econometrics of labor supply on convex budget sets," Economics Letters, Elsevier, vol. 3(2), pages 171-174.
    36. MaCurdy, Thomas E, 1983. "A Simple Scheme for Estimating an Intertemporal Model of Labor Supply and Consumption in the Presence of Taxes and Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(2), pages 265-289, June.
    37. Blomquist, Soren & Eklof, Matias & Newey, Whitney, 2001. "Tax reform evaluation using non-parametric methods: Sweden 1980-1991," Journal of Public Economics, Elsevier, vol. 79(3), pages 543-568, March.
    38. Blomquist, Soren, 1995. "Restrictions in labor supply estimation: Is the MaCurdy critique correct?," Economics Letters, Elsevier, vol. 47(3-4), pages 229-235, March.
    39. Showalter, Mark H. & Thurston, Norman K., 1997. "Taxes and labor supply of high-income physicians," Journal of Public Economics, Elsevier, vol. 66(1), pages 73-97, October.
    40. Gerald Auten & Robert Carroll, 1999. "The Effect Of Income Taxes On Household Income," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 681-693, November.
    41. Moffitt, Robert, 1990. "The Econometrics of Kinked Budget Constraints," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 119-139, Spring.
    42. Emmanuel Saez, 2002. "Optimal Income Transfer Programs: Intensive versus Extensive Labor Supply Responses," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 1039-1073.
    43. Henry S. Farber, 2003. "Is Tomorrow Another Day? The Labor Supply Of New York Cab Drivers," Working Papers 110, Princeton University, Department of Economics, Center for Economic Policy Studies..
    44. Pencavel, John, 1987. "Labor supply of men: A survey," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 1, pages 3-102, Elsevier.
    45. Rosen, Harvey S, 1976. "Taxes in a Labor Supply Model with Joint Wage-Hours Determination," Econometrica, Econometric Society, vol. 44(3), pages 485-507, May.
    46. Blomquist, N. Soren, 1988. "Nonlinear taxes and labor supply," European Economic Review, Elsevier, vol. 32(6), pages 1213-1226, July.
    47. T. J. Wales & A. D. Woodland, 1979. "Labour Supply and Progressive Taxes," Review of Economic Studies, Oxford University Press, vol. 46(1), pages 83-95.
    48. Klevmarken, N. Anders, 2005. "Estimates of a labour supply function using alternative measures of hours of work," European Economic Review, Elsevier, vol. 49(1), pages 55-73, January.
    49. Bessho, Shun-ichiro & Hayashi, Masayoshi, 2005. "Economic studies of taxation in Japan: The case of personal income taxes," Journal of Asian Economics, Elsevier, vol. 16(6), pages 956-972, December.
    50. Reilly, Kevin T, 1994. "Annual Hours and Weeks in a Life-Cycle Labor Supply Model: Canadian Evidence on Male Behavior," Journal of Labor Economics, University of Chicago Press, vol. 12(3), pages 460-477, July.
    51. Arthur van Soest, 1995. "Structural Models of Family Labor Supply: A Discrete Choice Approach," Journal of Human Resources, University of Wisconsin Press, vol. 30(1), pages 63-88.
    52. Blomquist, N. Soren, 1983. "The effect of income taxation on the labor supply of married men in Sweden," Journal of Public Economics, Elsevier, vol. 22(2), pages 169-197, November.
    53. Hausman, Jerry & Ruud, Paul, 1984. "Family Labor Supply with Taxes," American Economic Review, American Economic Association, vol. 74(2), pages 242-248, May.
    54. 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.
    55. Zabalza, Antoni, 1983. "The CES Utility Function, Non-Linear Budget Constraints and Labour Supply: Results on Female Participation and Hours," Economic Journal, Royal Economic Society, vol. 93(37), pages 312-330, June.
    56. Yatchew, Adonis J, 1985. "Labor Supply in the Presence of Taxes: An Alternative Specification," The Review of Economics and Statistics, MIT Press, vol. 67(1), pages 27-33, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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. 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.
    3. Shun-ichiro Bessho, 2018. "Child Benefit, Tax Allowances and Behavioural Responses: The Case of Japanese Reform, 2010–2011," The Japanese Economic Review, Springer, vol. 69(4), pages 478-501, December.
    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).
    5. Shigeki Kunieda, 2009. "Working Hours and Taxation," Japanese Economy, Taylor & Francis Journals, vol. 36(2), pages 3-22.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Shun-ichiro Bessho & Masayoshi Hayashi, 2005. "The CES utility function, non-linear budget constraints and labor supply : results on prime-age males in Japan," Labor Economics Working Papers 21911, East Asian Bureau of Economic Research.
    2. Rolf Aaberge & Ugo Colombino, 2014. "Labour Supply Models," Contributions to Economic Analysis, in: Cathal O’Donoghue (ed.), Handbook of Microsimulation Modelling, volume 127, pages 167-221, Emerald Publishing Ltd.
    3. Olivier Bargain & Kristian Orsini & Andreas Peichl, 2014. "Comparing Labor Supply Elasticities in Europe and the United States: New Results," Journal of Human Resources, University of Wisconsin Press, vol. 49(3), pages 723-838.
    4. Kumar, Anil, 2008. "Labor supply, deadweight loss and tax reform act of 1986: A nonparametric evaluation using panel data," Journal of Public Economics, Elsevier, vol. 92(1-2), pages 236-253, February.
    5. Atallah, Gamal, 1998. "Les impôts sur le revenu et l’offre de travail des femmes mariées : une revue de la littérature," L'Actualité Economique, Société Canadienne de Science Economique, vol. 74(1), pages 95-128, mars.
    6. Shun-ichiro Bessho & Masayoshi Hayashi, 2013. "Estimating the Social Marginal Cost of Public Funds," Public Finance Review, , vol. 41(3), pages 360-385, May.
    7. 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.
    8. Michiel Evers & Ruud de Mooij & Daniel van Vuuren, 2005. "What explains the variation in estimates of labour supply elasticities?," CPB Discussion Paper 51.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    9. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695, Elsevier.
    10. Michiel Evers & Ruud A. De Mooij & Daniel J. Van Vuuren, 2005. "What Explains the Variation in Estimates of Labour Supply Elasticities?," CESifo Working Paper Series 1633, CESifo Group Munich.
    11. Anil Kumar, 2012. "Nonparametric estimation of the impact of taxes on female labor supply," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 27(3), pages 415-439, April.
    12. Olivier Bargain & Kristian Orsini & Andreas Peichl, 2014. "Comparing Labor Supply Elasticities in Europe and the United States: New Results," Journal of Human Resources, University of Wisconsin Press, vol. 49(3), pages 723-838.
    13. Michael P. Keane, 2011. "Labor Supply and Taxes: A Survey," Journal of Economic Literature, American Economic Association, vol. 49(4), pages 961-1075, December.
    14. Liang, Che-Yuan, 2012. "Nonparametric structural estimation of labor supply in the presence of censoring," Journal of Public Economics, Elsevier, vol. 96(1), pages 89-103.
    15. Liang, Che-Yuan, 2018. "Taxes and Household Labor Supply: Estimating Distributional Effects of Nonlinear Prices on Multidimensional Choice," Working Paper Series 2018:2, Uppsala University, Department of Economics.
    16. Steinar StrØm & John K. Dagsvik, 2006. "Sectoral labour supply, choice restrictions and functional form," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(6), pages 803-826.
    17. van Soest, A.H.O. & Das, J.W.M. & Gong, X., 2000. "A Structural Labor Supply Model with Nonparametric Preferences," Other publications TiSEM 5e6f370d-3e08-48be-8a44-1, Tilburg University, School of Economics and Management.
    18. Olivier Bargain & Andreas Peichl, 2016. "Own-wage labor supply elasticities: variation across time and estimation methods," IZA Journal of Labor Economics, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-31, December.
    19. Michiel Evers & Ruud Mooij & Daniel Vuuren, 2008. "The Wage Elasticity of Labour Supply: A Synthesis of Empirical Estimates," De Economist, Springer, vol. 156(1), pages 25-43, March.
    20. Ledic, Marko, 2012. "Estimating Labor Supply at the Extensive Margin in the presence of Sample Selection Bias," MPRA Paper 55745, University Library of Munich, Germany.

    More about this item

    Keywords

    personal income taxes; pice-wise linear budget constraint; labor supply;
    All these keywords.

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hit:econdp:2008-02. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/fehitjp.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Digital Resources Section, Hitotsubashi University Library (email available below). General contact details of provider: https://edirc.repec.org/data/fehitjp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.