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Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation

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  • John Creedy
  • Guyonne Kalb

Abstract

. The assumption behind discrete hours labour supply modelling is that utility‐maximising individuals choose from a relatively small number of hours levels, rather than being able to vary hours worked continuously. Such models are becoming widely used in view of their substantial advantages, compared with a continuous hours approach, when estimating and their role in tax policy microsimulation. This paper provides an introduction to the basic analytics of discrete hours labour supply modelling. Special attention is given to model specification, maximum likelihood estimation and microsimulation of tax reforms. The analysis is at each stage illustrated by the use of numerical examples. At the end, an empirical example of a hypothetical policy change to the social security system is given to illustrate the role of discrete hours microsimulation in the analysis of tax and transfer policy changes.

Suggested Citation

  • John Creedy & Guyonne Kalb, 2005. "Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation," Journal of Economic Surveys, Wiley Blackwell, vol. 19(5), pages 697-734, December.
    • Handle: RePEc:bla:jecsur:v:19:y:2005:i:5:p:697-734
    DOI: 10.1111/j.0950-0804.2005.00265.x
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    More about this item

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

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