Assessing the impact of taxes on female labor supply using a finite mixture approach |
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Authors: | Peter Ericson Jörgen Hansen |
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Institution: | Ministry of Finance, Drottinggatan 21, 10333 Stockholm, Sweden, SE IZA, Institute for the Study of Labor, P.O. Box 7240, D-53072 Bonn, Germany (e-mail: hansen@iza.org), DE
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Abstract: | This paper expands the standard analysis of female labor supply to permit preference heterogeneity by using a finite mixture
model. Using the extended model, we obtain theory consistent results whereas a traditional model produces a negative substitution
effect. We use our model to illustrate the labor supply effects of a tax reform, corresponding to 1983–1992 changes in the
Swedish income-tax schedule. The results shows an expected reduction in tax revenues of about 17%. Finally, we use Monte Carlo
simulations and show that our proposed mixture model is robust towards different misspecifications.
First version received: March 1998/final version accepted: October 1999 |
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Keywords: | : Heterogeneity in preferences finite mixtures female labor supply taxes tax simulation |
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