Model Of Household Labour Supply Research Articles

Gender pension gaps in a private retirement accounts system: A dynamic model of household labor supply and savings

This paper develops and estimates a dynamic model of individuals’ and couples’ labor supply, savings, and retirement decisions to analyze how the design of Chile’s privatized pension system and a reform undertaken in 2008 affect gender pension gaps and old-age poverty. Chile has one of the longest-running private retirements accounts systems in the world, which has served as a model for many countries. The paper estimates the dynamic model using pre-reform data and compares the model’s short-term forecasts with reduced form estimates of the reform’s causal impacts. The model provides accurate forecasts, so it is used to evaluate how actual and counterfactual changes in the pension system design affect men’s and women’s labor supply and savings decisions, pension receipts, and program costs over a longer time horizon. The results show that three design features significantly reduce gender pension gaps: expanding minimum pension benefit eligibility, providing a per-child pension bonus, and increasing women’s retirement age to be equal to men’s. Overall, the 2008 pension reform largely achieved its goals of reducing gender gaps and old age poverty, although the new system costs double that of the old system.

Household Time Use among Older Couples: Evidence and Implications for Labor Supply Parameters*

Using the Consumption Activities Mail Survey (CAMS) module in the HRS we document how time allocations change for individuals within a household when one or more members transitions from full time work to not working. Our basic finding is that the ratio of home production to leisure time is approximately constant for both family members. We then build a model of household labor supply to understand the implications of this finding for preferences and the home production function. We conclude that this fact suggests a relatively large elasticity of substitution between the leisure of the two members. For commonly used preference specifications, this also implies a large (i.e., greater than one) intertemporal elasticity of substitution for leisure.

Why Did Indian Female Labor Force Participation Decline?: Evidence From a Model of Household Labor Supply

Between 1983 and 2011, Indian married women's labor force participation (LFP) declined from 35% to 24%, even while the economy grew, educational attainment rose, and fertility fell. To study this decline in LFP, I use India's National Sample Survey to construct a unique sample of matched husband-wife pairs. The economics of household labor supply suggests that the explanation may lie in husbands' incomes that exert a negative income effect on wives' LFP. Two-stage least squares estimates of a model of household labor supply reveal positive wives' own-wage elasticities, from 0.25 in 1983 to 0.67 in 2011, and negative cross-wage elasticities, rising from -0.54 in 1983 to -0.75 in 2011. Estimating the model for the period as a whole, trends in wives' wages imply an increase in women's LFP of 8.6 percentage points, and trends in husbands' wages imply a decrease of 20.8 percentage points, for an overall decline of 12.2 percentage points.

Collective decisions, household production, and labor force participation

SummaryIn this paper, we generalize the collective model of household labor supply with domestic production to allow for the possibility of nonparticipation in the labor market. We also relax the marketability assumption according to which domestic goods and market goods are perfectly substitutable. Our results are twofold. First, we show that the main structural components of the decision process can be retrieved from observed behavior. Second, we estimate a system of market and domestic labor supply using the Panel Study of Income Dynamics and apply the theoretical results to recover the intra‐household sharing of resources.

Women at Work: The Impact of Welfare and Fiscal Policies in a Dynamic Labor Supply Model

We build and estimate a structural dynamic life-cycle model of household labor supply, fertility, and consumption behavior. The model features several sources of heterogeneity in household members’ characteristics and it incorporates most of the fiscal rules that affect household net income. The parameters of the model are estimated using Italian longitudinal data for the period 2004-12 in order to investigate the causes of the relatively low labor supply by married women in this country. The model matches many characteristics of the data quite well. We use the estimated model to simulate a few counterfactual fiscal and welfare policies: some of them are effective in decreasing poverty rates while increasing labor supply.

The Effectiveness of Fiscal Stimuli for Working Parents

To promote the labor participation of parents with young children, governments employ a number of fiscal instruments. Prominent examples are childcare subsidies and in-work benefits. However, which policy works best for employment is largely unknown. We study the effectiveness of different fiscal stimuli in an empirical model of household labor supply and childcare use. We use a large and rich administrative data set for the Netherlands. Large-scale reforms in childcare subsidies and in-work benefits in the data period facilitate the identification of the structural parameters. We find that an in-work benefit for secondary earners that increases with income is the most effective way to stimulate total hours worked. Childcare subsidies are less effective, as substitution of other types of care for formal care drives up public expenditures. In-work benefits that target both primary and secondary earners are much less effective, because primary earners are rather unresponsive to financial incentives.

Marital Sorting, Inequality and the Role of Female Labor Supply: Evidence from East and West Germany

This paper examines to what extent marital sorting affects cross-sectional earnings inequality in Germany over the past three decades, while explicitly taking into account labor supply choices. Using rich micro data, the observed distribution of couples' earnings is compared to a counterfactual of randomly matched spouses. Hypothetical earnings are predicted based on a structural model of household labor supply. For West Germany, a positive effect of marital sorting on inequality is found after adjusting for labor supply behavior, while the effect is limited when earnings are taken as given. This means that there is positive sorting in earnings potential which is veiled by relatively low female labor force participation. In East Germany, the impact of marital sorting on inequality is highly disequalizing irrespective of adjusting for labor supply choices. This is mainly due to the fact that East German women are much more attached to the labor market.

Shifting Taxes from Labour to Property: A Simulation Under Labour Market Equilibrium

A tax shifting from labour income to housing taxation is generally advocated on efficiency grounds. However, most of the empirical literature focuses on the distributional implications of property tax reforms without paying much attention to potential consequences on the labour market. The aim of this paper is to fill this gap by investigating the effects of a tax shifting from labour income to property, guaranteeing revenue neutrality, and to assess the consequences of labour market equilibrium, both on occupation rates and income distribution. We propose to consider a hypothetical tax reform in Italy which uses the revenue of the tax on house property (actually implemented in 2012) for increasing tax credits on low incomes and making them refundable. In order to evaluate the reform we have developed a structural model of household labour supply which takes into account the labour market equilibrium conditions. Overall, the simulated policy provides a more effective income support and better incentives to work for low wage households and determines an improvement in inequality indexes.

Tax enforcement policies, tax evasion and time allocation

Abstract Several studies examine the effect of tax rates on households’ labor supply decisions in attempts to account for observed differences in work hours across countries. Interestingly, these studies fail to consider a fundamental action associated with taxation: tax evasion. This paper introduces, into a general equilibrium model of household labor supply, the possibility that households can evade labor income taxes. We show that the relationship between tax-enforcement policies, the elasticity of substitution between consumption and leisure and the elasticity of substitution between formal and informal work is key to explain formal labor supply in major OECD countries. In a model without informal work, there is a positive relationship between the elasticity of substitution and the tax rate on formal income and people tend to work more. This is the case for the United States, Greece, Finland and the United Kingdom. This relationship becomes negative once informal activities are introduced and the model can explain formal labor supply better in countries where agents work relative less, i.e., in Austria, Denmark, France, Germany, Spain, Norway and Sweden. We also obtain estimates of hours worked in the informal sector for these countries.

Using a Microeconometric Model of Household Labour Supply to Design Optimal Income Taxes*

AbstractWith regards to empirical applications of optimal taxation theory, analytical expressions are typically adopted for optimal taxes, and then numerical values are imputed to their parameters by calibration or by using previous estimates. We aim to avoid the restrictive assumptions and possible inconsistencies of this approach. In contrast, we identify optimal taxes by iteratively running a microeconometric model, based on 1994 Norwegian data, until a given social welfare function is maximized, given the public budget constraint. The optimal rules envisage monotonically increasing marginal rates (negative on very low incomes) and – compared to the current rule – a lower average rate, lower marginal rates on low incomes, and higher marginal rates on very high incomes.

Home production and the welfare cost of labour supply tax distortions

The traditional model of household labour supply incorporates leisure into preferences rather than focusing on how relative costs of production at home and via market activity determine market labour supply. In part, this reflects the lack of simple closed form solutions for the home production model. This article uses numerical techniques to compare the welfare costs of tax distortions of labour supply in models with and without home production. When observationally equivalent models of each type are calibrated to the same aggregate labour supply elasticity, the home production model of labour supply produces a much smaller welfare cost of tax distortions of labour supply than the standard model. Our results thus suggest that home production is important for understanding the welfare effects of labour tax policies.

What's Best for Women: Gender Based Taxation, Wage Subsidies or Basic Income?

We use a microeconometric model of household labour supply in order to evaluate, with Italian data, the behavioural and welfare effects of gender based taxation (GBT) as compared to other policies based on different optimal taxation principles. The comparison is interesting because GBT, although technically correct, might face implementation difficulties not shared by other policies that in turn might produce comparable benefits. The simulation procedure accounts for the constraints implied by fiscal neutrality and market equilibrium. Our results support to some extent the expectations of GBT's proponents. However it is not an unquestionable success. GBT induces a modest increase of women's employment, but similar effects can be attained by universal subsidies on low wages. When the policies are evaluated in terms of welfare, GBT ranks first among single women but for the whole population the best policies are subsidies on low wages, unconditional transfers or a combination of the two.

Alternative Basic Income Mechanisms: An Evaluation Exercise With a Microeconometric Model

We develop and estimate a microeconometric model of household labour supply in four European countries with differing economies and welfare policy regimes: Denmark, Italy, Portugal and the United Kingdom. We then simulate, under the constraint of constant total net-tax revenue (fiscal neutrality), the effects of various hypothetical tax-transfer-reform basic-income policies: Guaranteed Minimum Income, Work Fare, Participation Basic Income and Universal Basic Income. We produce indexes and criteria by which the reforms can be ranked and compared to current tax-transfer systems. The exercise can be considered as one of empirical optimal taxation, where the optimization problem is solved computationally rather than analytically. Many versions of basic income policies would be superior to the current system, and the most successful are not means-tested (Universal or Participation Basic Income) and adopt progressive tax rules. If constraints other than fiscal neutrality are considered, such as the implied top marginal tax rate or the effect on female labour supply, the picture changes: unconditional policies remain optimal and feasible in Denmark and the United Kingdom; while in Italy and Portugal universal policies appear instead to be too costly in implied top marginal tax rates and adverse effects on female participation conditional policies such as Work Fare emerge as more desirable there.

Alternative Basic Income Mechanisms: An Evaluation Exercise with a Microeconometric Model

We develop and estimate a microeconometric model of household labour supply in four European countries representative of different economies and welfare policy regimes: Denmark, Italy, Portugal and the United Kingdom. We then simulate, under the constraint of constant total net tax revenue (fiscal neutrality), the effects of various hypothetical tax-transfer reforms which include alternative versions of a Basic Income policy: Guaranteed Minimum Income, Work Fare, Participation Basic Income and Universal Basic Income. We produce indexes and criteria according to which the reforms can be ranked and compared to the current tax-transfer systems. The exercise can be considered as one of empirical optimal taxation, where the optimization problem is solved computationally rather than analytically. It turns out that many versions of the Basic Income policies would be superior to the current system. The most successful policies are those involving non means-tested versions of basic income (Universal or Participation Basic Income) and adopting progressive tax-rules. If – besides the fiscal neutrality constraint – also other constraints are considered, such as the implied top marginal top tax rate or the effect on female labour supply, the picture changes: unconditional policies remain optimal and feasible in Denmark and the UK; instead in Italy and Portugal universal policies appear to be too costly in terms of implied top marginal tax rates and in terms of adverse effects on female participation, and conditional policies such as Work-Fare, emerge as more desirable.

Behavioural and Welfare Effects of Basic Income Policies: A Simulation for European Countries

We develop and estimate a microeconometric model of household labour supply in four European countries representative of different economies and welfare policy regimes: Denmark, Italy, Portugal and United Kingdom. We then simulate, under the constraint of constant total net tax revenue, the effects of 10 hypothetical tax-transfer reforms which include various alternative versions of a Basic Income policy. We produce various indexes and criteria according to which the reforms can be ranked. The exercise can be considered as one of empirical optimal taxation, where the optimization problem is solved computationally rather than analytically. As long as the ranking of reforms is done according to welfaristic criteria it turns out that the most successful policies are those involving non means-tested versions of basic income and adopting progressive tax-rules. When other criteria (such as the implied top marginal tax rate or the effect on female labour supply) are also taken into account, the picture changes: universalistic policies remain optimal and feasible in countries like Denmark where female participation rates are very high; instead, in countries with low female participation rates (like Italy) universalistic policies appear to be too costly in terms of implied top marginal tax rates and in terms of adverse effects on female participation, and means-tested policies such as Work-Fare or Negative Income Tax seem more desirable.

Introducing Family Tax Splitting in Germany: How Would It Affect the Income Distribution, Work Incentives, and Household Welfare?

We analyze the effects of three different proposals to introduce a family tax-splitting system in Germany. The empirical analysis is based on a behavioral microsimulation model, which integrates an empirical household labor-supply model into a detailed tax-benefit model. Our results show that, under each reform, the lion's share of the reduction in taxes would accrue to families in the upper part of the income distribution, and that labor-supply effects are small. If budgetary balance were financed by a reduction of the child benefit, our results suggest that none of the reforms would be welfare-improving.

Testing the collective model of household labor supply: Evidence from China

Abstract This paper tests the collective model against the unitary model by estimating the labor supply of both the husband and wife. Using data from a developing country, China, we reject the hypothesis that distribution factors have no effect on household time allocation decisions. On the other hand, we cannot reject restrictions implied by the collective model. Thus the unitary model is not supported while the collective model gains credence in this study. Our findings suggest that the traditional patriarchalism in Chinese families is giving ways to power sharing between spouses.

Assessing the Welfare Impact of the 2001 Tax Reform on Dual-Earner Families

The welfare impact of the 2001 income tax reform is assessed across dual-earner families with different characteristics. A household labor supply model is estimated to account for variable behavioral responses by family type. It was found that while higher education families received a larger share of the welfare gain generated from lower marginal tax rates, it was the lower education families that provided the bulk of the additional labor supply motivated by the tax reform. Differing welfare gains across families with different numbers of children were also found, highlighting the importance of allowing responses to vary across family characteristics when assessing the welfare impact of a policy change.

TECHNOLOGICAL CHANGE, INEQUALITY AND WORK SHARING

ABSTRACTThe effects of technological change on wage inequality are usually studied under the assumption of exogenous supplies of skilled and unskilled workers. Moreover, in these studies there is no distinction between the stock (number of workers) and the flow (hours of work) dimension of labour services. In the present paper, we construct a model in which hours of work and technological change affect both the (relative) demand and supply of unskilled workers. The labour supply of unskilled workers (numbers of persons) is derived from a model of household labour supply in which households differ regarding the disutility suffered when both household members work. Combining together the (relative) supply and demand parts of the model we are able to establish technological change (either biased or neutral) as a plausible explanation of recent trends in wage inequality.

Designing Optimal Taxes with a Microeconometric Model of Household Labour Supply

Designing Optimal Taxes with a Microeconometric Model of Household Labour Supply