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Evaluation of tax reforms when workers have preferences over job attributes and face latent choice restrictions

  • John K. Dagsvik

    ()

  • S. Strøm

    ()

  • Marilena Locatelli

    ()

This paper analyzes the properties of a particular sectoral labor supply model developed and estimated in Dagsvik and Strøm (2006). Agents have preferences over sectors and latent job attributes. Moreover, the model allows for a representation of the individual choice sets of feasible jobs in the economy. The properties of the model are explored by calculating elasticities and through simulations of the effects of particular tax reforms. The overall wage elasticities are rather small, but these small elasticities shadow for much stronger sectoral responses. An overall wage increase and, of course, a wage increase in the private sector only, gives women an incentive to shift their labor supply from the public to the private sector. Marginal tax rates were cut considerably in the 1992 tax reform. We find that the impact on overall labor supply is rather modest, but again these modest changes shadow for stronger sectoral changes. The tax reform stimulated the women to shift their labor from the public to the private sector and to work longer hours. A calculation of mean compensated variation shows that the richest households benefited far more from the 1992 tax reform than did the poorest households.

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File URL: http://www.child-centre.unito.it/papers/child13_2007.pdf
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Paper provided by CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY in its series CHILD Working Papers with number wp13_07.

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Length: 41 pages
Date of creation: Jul 2007
Date of revision:
Handle: RePEc:wpc:wplist:wp13_07
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  1. 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.
  2. Aaberge, Rolf & Colombino, Ugo & Strom, Steinar, 1999. "Labour Supply in Italy: An Empirical Analysis of Joint Household Decisions, with Taxes and Quantity Constraints," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(4), pages 403-22, July-Aug..
  3. G. Burtless & J. A. Hausman, 1977. "The Effect of Taxation on Labor Supply: Evaluating the Gary Negative Income Tax Experiment," Working papers 211, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. 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.
  5. Atkinson, Anthony B., 1995. "The Welfare State and Economic Performance," National Tax Journal, National Tax Association, vol. 48(2), pages 171-98, June.
  6. Dagsvik, John K. & Strøm, Steinar, 2004. "Sectoral labor supply, choice restrictions and functional form," Memorandum 13/2004, Oslo University, Department of Economics.
  7. Orley Ashenfelter & James Heckman, 1971. "The Estimation of Income and Substitution Effects in a Model of Family Labor Supply," Working Papers 402, Princeton University, Department of Economics, Industrial Relations Section..
  8. Altonji, Joseph G & Paxson, Christina H, 1988. "Labor Supply Preferences, Hours Constraints, and Hours-Wage Trade-Offs," Journal of Labor Economics, University of Chicago Press, vol. 6(2), pages 254-76, April.
  9. Bruce D. Meyer & Bradley T. Heim, 2004. "Structural Labor Supply Models when Budget Constraints are Nonlinear," Econometric Society 2004 North American Winter Meetings 567, Econometric Society.
  10. Richard Blundell & Thomas MaCurdy, 1998. "Labour supply: a review of alternative approaches," IFS Working Papers W98/18, Institute for Fiscal Studies.
  11. Aaberge, Rolf & Dagsvik, John K & Strom, Steinar, 1995. " Labor Supply Responses and Welfare Effects of Tax Reforms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 635-59, December.
  12. John K. Dagsvik & Anders Karlstr�m, 2005. "Compensating Variation and Hicksian Choice Probabilities in Random Utility Models that are Nonlinear in Income," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 57-76.
  13. Dagsvik, John K, 1994. "Discrete and Continuous Choice, Max-Stable Processes, and Independence from Irrelevant Attributes," Econometrica, Econometric Society, vol. 62(5), pages 1179-1205, September.
  14. Heckman, James J, 1974. "Shadow Prices, Market Wages, and Labor Supply," Econometrica, Econometric Society, vol. 42(4), pages 679-94, July.
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