Is the Collective Model of Labor Supply Useful for Tax Policy Analysis? A Simulation Exercise

37 Pages Posted: 14 Jan 2005

See all articles by Nicolas Moreau

Nicolas Moreau

Université Laval - Département d'Économique; CIRPEE

Olivier Bargain

IZA Institute of Labor Economics; University College Dublin (UCD)

Date Written: January 2005

Abstract

The literature on household behavior contains hardly any empirical research on the within-household distributional effect of tax-benefit policies. We simulate this effect in the framework of a collective model of labor supply when shifting from a joint to an individual taxation system in France. We show that the net-of-tax relative earning potential of the wife is a significant determinant of intrahousehold negotiation but with very low elasticity. Consequently, the labor supply responses to the reform are entirely driven by the traditional substitution and income effects as in a unitary model. For some households only, the reform alters the intrahousehold distribution in a way that tends to change normative conclusions. A sensitivity analysis shows that the collective model would be required if the tax reform was both radical and of extended scope.

JEL Classification: C71, D11, D12, H31, J22

Suggested Citation

Moreau, Nicolas and Bargain, Olivier, Is the Collective Model of Labor Supply Useful for Tax Policy Analysis? A Simulation Exercise (January 2005). Available at SSRN: https://ssrn.com/abstract=396040

Nicolas Moreau (Contact Author)

Université Laval - Département d'Économique ( email )

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CIRPEE ( email )

Ste-Foy, Quebec G1K 7P4
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Olivier Bargain

IZA Institute of Labor Economics ( email )

P.O. Box 7240
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Germany

University College Dublin (UCD) ( email )

Belfield, Dublin 4 4
Ireland
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+353 1 283 0068 (Fax)

HOME PAGE: http://www.ucd.ie/economics/staff/obargain/obargain.htm

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