Labor Supply Responses and Welfare Effects of Tax Reforms

Abstract

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Accounting for labor demand effects in structural labor supply models

“…We obtain similar results when using other approaches, such as the analytical derivation of error terms proposed by Bonin and Schneider (2006a) or using the conventional frequency method (Aaberge et al (1995) or van Soest (1995). …”

“…The main advantage of this model over continuous ones is the possibility to account for non-linearities and non-convexities in the budget set. Those kinds of models have become quite standard in the last 15 years (see Aaberge et al (1995), van Soest (1995 and Blundell et al (2000)), and so we focus here on the fundamental, underlying assumptions for the estimation. 3 Following van Soest (1995), we rely on a translog speci…cation of utility.…”

“…In those models, working hours generally stem from some sort of o¤er distribution (see Mo¢ tt (1982), van Soest et al (1990) and Aaberge et al (1995)). Tummers and Woittiez (1991) extend those models by allowing the wage rate to vary with the o¤ered hours.…”

“…Furthermore, they crucially a¤ect the optimal design of tax systems (see, e.g., Saez (2001), Immervoll et al (2007) and Blundell et al (2009)). The elasticities are usually derived using some sort of (structural or reduced form) labor supply model (see, e.g., Aaberge et al (1995Aaberge et al ( , 1999Aaberge et al ( , 2000, Hoynes (1996), Eissa and Hoynes (2004) and Heim (2007Heim ( , 2009). All these studies have in common that they focus only on the supply side implicitly assuming perfectly elastic labor demand.…”

Explaining Differences in Hours Worked among OECD Countries

“…Altonji and Oldham (2003) 9 OECD countries, years: 1979, 1982, 1984, 1995 Average annual hours actually w orked per person in employment, OECD.…”