The Working Families’ Tax Credit and Some European Tax Reforms in A Collective Setting

Abstract

A framework for simplified implementation of the collective model of labor supply decisions is presented in the context of fiscal reforms in the UK. Through its collective form the model accounts for the well known problem of distribution between wallet and purse, a broadly debated issue which has so far been impossible to model due to the limitations of the unitary model of household behavior. A calibrated data set is used to model the effects of introducing two forms of the Working Families' Tax Credit. We also summarize results of estimations and calibrations obtained using the same methodology on data from five other European countries. The results underline the importance of taking account of the intrahousehold decision process and suggest that who receives government transfers does matter from the point of view of labor supply and welfare of household members. They also highlight the need for more research into models of household behavior.

Static and Intertemporal Household Decisions

“…It is then possible to use data on singles to complement the “pure,” collective identification. For instance, a series of papers recently published in the Review of Economics of the Household (Bargain et al 2006; Beninger et al 2006; Myck et al 2006; Vermeulen et al 2006) consider a collective model of labor supply with public and private consumption, and assume that the marginal rate of substitution between leisure and private consumption is independent of marital status. Then the model is fully identified.…”

Should the Japanese tax system be more progressive? An evaluation using the simulated SMCFs based on the discrete choice model of labor supply

“…They assume (19b') or (20b') for the coefficients on (i) consumption (n = c) (Blundell et al 1999, Haan 2006, Gerfin and Leu 2007, Bargain 2009), (ii) leisure (n = l) (Van Soest 1995, Van Soest and Das 2001, Gong and Van Soest 2002, Vermeulen 2006, Callan et al 2009, Shalhoub 2011 , and (iii) both consumption and leisure (n = c, l) (Duncan and Harris 2002, Brewer et al 2006, Mych et al 2006, Brink et al 2007, Baldini and Pacifico 2009). 8…”

“…Vermeulen (2006) andShalhoub (2011) also allowed the random coefficient on the squared value of leisure.8 Duncan and Harris (2002), Brewer et al (2005), and Callan et al (2009) also considered unobserved heterogeneity in fixed cost (20c).…”

Multi-family households in a labour supply model: a calibration method with application to Poland

“…The method of 'borrowing' preferences from one population group and applying it to another has been used before in the literature, recently in the application of the collective model of labour supply in Beninger et al (2006Beninger et al ( , 2007, Myck et al (2006), Vermeulen et al (2006). In these applications the assumptions were much stronger compared to those we make in this artilce, as in these instances preferences of single individuals (without children) were used for individuals living in couples (with or without children).…”

“…Such combination has been successfully used in the context of the collective model for Single Family Households (SFHs) (e.g. Myck et al, 2006;Vermeulen et al, 2006;Beninger et al, 2007). The method we develop is applied to Polish data.…”