Labor Supply and Taxation in France

Abstract

This paper provides sequential labor supply estimates for French married men and women under specifications analogous to those used by Hausman to account for the effects of taxation upon the budget constraint. Results suggest that, even though labor force participation follows the expected pattern, work hours are quite rigid, most of the variation in the latter being attributed to measurement errors. The second part of the paper concentrates on the simultaneous estimation of male and female labor supply. Conditional maximum likelihood techniques are shown to permit the separate estimation of work hours for both spouses with an appropriate set of instruments aimed at correcting for the biases arising from simultaneity, selectivity, and the nonlinearity of the budget constraint. Although consistent, the resulting estimates apparently contradict the usual rationality restrictions on family labor supply behavior and seem to confirm the lack of flexibility in work hours.