A panel study of labour supply and taxes in Denmark

The labour supply of Danish married couples is estimated on a longitudinal sample of about 3000 Danish couples observed over the period 1980–86. The influence of the progressive tax system and the effect of the unemployment insurance system are evaluated. The definition of unemployment in labour-supply functions is discussed, and two separate models are estimated where unemployment is considered either completely voluntary or completely involuntary. The wage elasticity and the supply effects of tax reduction are estimated to be positive, but numerically small for both men and women.