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Is the Collective Model of Labor Supply Useful for Tax Policy Analysis? A Simulation Exercise

  • Bargain, Olivier

    ()

    (University of Aix-Marseille II)

  • Moreau, Nicolas

    ()

    (Université de la Réunion)

The literature on household behavior contains hardly any empirical research on the within-household distributional effect of tax-benefit policies. We simulate this effect in the framework of a collective model of labor supply when shifting from a joint to an individual taxation system in France. We show that the net-of-tax relative earning potential of the wife is a significant determinant of intrahousehold negotiation but with very low elasticity. Consequently, the labor supply responses to the reform are entirely driven by the traditional substitution and income effects as in a unitary model. For some households only, the reform alters the intrahousehold distribution in a way that tends to change normative conclusions. A sensitivity analysis shows that the collective model would be required if the tax reform was both radical and of extended scope.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1451.

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Length: 38 pages
Date of creation: Jan 2005
Date of revision:
Publication status: published in: Research on Economic Inequality, 2007 (14), 317-344
Handle: RePEc:iza:izadps:dp1451
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