Nonparametric Estimation of the Impact of Taxes on Female Labor Supply

61 Pages Posted: 30 Jul 2004

See all articles by Anil Kumar

Anil Kumar

Federal Reserve Bank of Dallas - Research Department

Date Written: June 2006

Abstract

Econometric models with nonlinear budgets sets frequently arise in the study of impact of taxation on labor supply. Blomquist and Newey (2002) have suggested a nonparametric method to estimate the uncompensated wage and income effects when the budget set is nonlinear. This paper extends their nonparametric estimation method to censored dependent variables. The modified method is applied to estimate female wage and income elasticities using the 1985 and 1989 waves of PSID exploiting the drastic change in the complete budget set caused by TRA 1986 as a source of identification. I find evidence of downward bias in estimated elasticities if the nonlinearity in the budget set is ignored. The estimated wage elasticities range from 0.6-0.74 for total hours and from 0.26-0.29 on the intensive margin. The income elasticity estimates range from -0.4 to -0.67 overall and from -0.12 to -0.15 on the intensive margin.

Keywords: Taxes and Female Labor supply, Kinked Budget Set, Nonparametric Estimation

JEL Classification: J22, H24, C14, C24

Suggested Citation

Kumar, Anil, Nonparametric Estimation of the Impact of Taxes on Female Labor Supply (June 2006). Available at SSRN: https://ssrn.com/abstract=568461 or http://dx.doi.org/10.2139/ssrn.568461

Anil Kumar (Contact Author)

Federal Reserve Bank of Dallas - Research Department ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

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