Labour Supply and Taxes: New Estimates of the Responses of Wives to Husbands' Wages

31 Pages Posted: 10 Mar 2012

See all articles by Benoit Dostie

Benoit Dostie

HEC Montreal - Institute of Applied Economics; IZA Institute of Labor Economics

Lene Kromann

University of Southern Denmark - Department of Business and Economics; Copenhagen Business School - Center for Economic and Business Research (CEBR)

Abstract

In this paper, we estimate income- and substitution- labour supply and participation elasticities for Canadian married women using data from the Survey of Labour and Income Dynamics 1996-2005. We use the Canadian Tax and Credit Simulator (CTaCS) and detailed information on the structure of income at the household level to compute the marginal tax rates faced by each individual. We then use these marginal tax rates to compute net own-wage, spouse-wage, and non-labour income. We show how the magnitude of the estimated elasticities varies depending on whether net or gross wages and income are used in the estimation procedure, and quantify biases caused by using average instead of marginal tax rates. Finally, because marginal tax rates vary significantly over the sample, we use quantile regressions to compare elasticities at different points of the hours distribution. Overall, our results show that public policies now have, on average, less scope for influencing hours of work than 10 years ago. However, the quantile results show that wives working fewer hours per week are more sensitive to changes in their own or spouses' wages.

Keywords: labour supply, elasticities, labour force participation, taxes, Canada

JEL Classification: C25, H31, J22

Suggested Citation

Dostie, Benoit and Kromann, Lene, Labour Supply and Taxes: New Estimates of the Responses of Wives to Husbands' Wages. IZA Discussion Paper No. 6392. Available at SSRN: https://ssrn.com/abstract=2019444

Benoit Dostie (Contact Author)

HEC Montreal - Institute of Applied Economics ( email )

3000, ch. de la Côte-Ste-Catherine
Montréal, Quebec H3T 2A7
Canada
514-340-6453 (Phone)
514-340-6469 (Fax)

HOME PAGE: http://www.hec.ca/profs/benoit.dostie.html

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Lene Kromann

University of Southern Denmark - Department of Business and Economics ( email )

DK-5230 Odense
Denmark

Copenhagen Business School - Center for Economic and Business Research (CEBR) ( email )

Porcelænshaven 16F
Frederiksberg, Copenhagen DK-2000
Denmark

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