Taxation and Family Labor Supply
I examine the impact of taxation on family labor supply and test economic models of the family by analyzing responses to the Tax Reform of 1991 in Sweden, known as the "tax reform of the century" because of its large magnitude. Using detailed administrative panel data on approximately 11% of the married Swedish population, I ...nd that husbands and wives react substantially to their own marginal tax rates and to their spouses’rates. The estimates imply that husbands’leisure and wives’leisure are complements in the full sample. I test and reject a set of models in which the family maximizes a single utility function. The standard econometric labor supply specification, in which one spouse reacts to the other spouse’ income as if it were s unearned income, yields biased coe¢ cient estimates. Uncompensated labor supply elasticities are over-estimated by a factor of more than three, and income e¤ects are of the wrong sign. Overall, the results suggest that there is interplay between spouses’ labor supply decisions, and that taking account of this joint aspect of their decision- making leads to new conclusions about labor supply responses to taxation.
|Date of creation:||2008|
|Date of revision:|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:red:sed008:249. 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: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.