Is the Household Demand for In-Home Services Sensitive to Tax Reductions? The French Case

32 Pages Posted: 15 Nov 2004

See all articles by Anne Flipo

Anne Flipo

affiliation not provided to SSRN

Denis Fougère

National Institute of Statistics and Economic Studies (INSEE) - National School for Statistical and Economic Administration (ENSAE); National Center for Scientific Research (CNRS); IZA Institute of Labor Economics

Lucile Olier

INSEE

Date Written: November 2004

Abstract

Our paper examines the impact of tax reductions on the demand for services in the home. For that purpose, we estimate a structural model of demand for such services by using household individual data collected by INSEE (Paris) in 1996. In this model, the net hourly wage paid to the domestic employee, the household preferences for consumption of in-home services and the decision to take advantage of the tax reduction are considered as endogenous variables. Estimation of the econometric model uses the fact that some households are observed to consume domestic services and to take advantage of the tax reduction, while others either consume such services but do not take advantage of the tax reduction, or do not consume these services at all. Its identification relies on an exclusion restriction resulting from the tax credit schedule. Results show that the probability of consuming in-home services increases with age and income. A ten per cent increase in the tax reduction would increase from 45.9 to 50.8 per cent the proportion of households benefiting from the tax reduction among those who consume paid in-home services. Moreover, 13.5 per cent of households who do not actually consume such services would do so after the ten per cent increase in the tax reduction. These simulated variations would mainly concern high-income households.

Keywords: services in the home, tax reduction, household demand, labor cost

JEL Classification: D13, J12

Suggested Citation

Flipo, Anne and Fougere, Denis and Olier, Lucile, Is the Household Demand for In-Home Services Sensitive to Tax Reductions? The French Case (November 2004). Available at SSRN: https://ssrn.com/abstract=620324

Anne Flipo

affiliation not provided to SSRN

Denis Fougere (Contact Author)

National Institute of Statistics and Economic Studies (INSEE) - National School for Statistical and Economic Administration (ENSAE) ( email )

15, Boulevard Adolphie PINARD
92245 Malakoff Cedex
France
+33 1 4117 7713 (Phone)
+33 1 4117 7634 (Fax)

National Center for Scientific Research (CNRS)

3, rue Michel-Ange
Paris cedex 16, 75794
France

IZA Institute of Labor Economics

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

Lucile Olier

INSEE ( email )

18, Boulevard Adolphe-Pinard
75675 Paris Cedex 14
France

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