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Normative Evaluation of Tax Policies: From Households to Individuals

  • Bargain, Olivier

    ()

    (Aix-Marseille University)

We analyze the impact on French couples of a tax policy change – the introduction of a family tax credit – using jointly a collective model of household labor supply and a tax-benefit microsimulation program. In a first step, we suggest a larger interpretation of labor supply behaviors which represent a general concept of ‘effort’ rather than the simple working duration. In this case, individual productivities cannot be assimilated with wage rates and must be retrieved. We do so by inverting the optimal household program to express productivities in function of observed labor incomes, under simple assumptions on preferences and the bargaining rule. In a second step, the calibrated model is used to predict distributive and incentives effects of the reform. By use of the collective approach, individual or household welfare indices can be aggregated within a social welfare function. Under previous assumptions, it is shown that the desirability of the reform may depend on the unit under consideration (household or individual). This simple exercise aims to take family modeling toward empirical applications and questions the validity of normative tools (social welfare functions) when both intra- and inter-household redistribution effects are accounted for.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1441.

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Length: 31 pages
Date of creation: Dec 2004
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Handle: RePEc:iza:izadps:dp1441
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