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Nonlinear Taxes in a Life-Cycle Consistent Model of Family Labour Supply

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  • Aronsson, Thomas
  • Wikstrom, Magnus

Abstract

This paper deals with family labour supply under nonlinear income taxation in a life-cycle consistent framework. A major purpose of the paper is, therefore, to bring together previous research on how to model joint supply decisions, life-cycle consistency and piecewise linear taxation, and then perform an econometric application using Swedish cross-section data. The paper starts by constructing an intertemporal model of household behaviour, which is used to derive optimal hours of work for the husband and the wife, respectively. Then, given the appropriate theoretical framework, the model is specified in a way suitable for econometric analysis. Regarding the estimation results, we find that both male and female labour supply are sensitive not only to changes in the own marginal wage rate and the virtual nonlabour income, but also to changes in the marginal wage rate of the spouse. The latter means that cross-wage effects are important when it comes to interpret the consequences of income taxation.

Suggested Citation

  • Aronsson, Thomas & Wikstrom, Magnus, 1994. "Nonlinear Taxes in a Life-Cycle Consistent Model of Family Labour Supply," Empirical Economics, Springer, vol. 19(1), pages 1-17.
    • Handle: RePEc:spr:empeco:v:19:y:1994:i:1:p:1-17
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    Cited by:

    1. Atallah, Gamal, 1998. "Les impôts sur le revenu et l’offre de travail des femmes mariées : une revue de la littérature," L'Actualité Economique, Société Canadienne de Science Economique, vol. 74(1), pages 95-128, mars.
    2. Alexander Gelber, 2008. "Taxation and Family Labor Supply," 2008 Meeting Papers 249, Society for Economic Dynamics.
    3. Anil Kumar, 2016. "Lifecycle-consistent female labor supply with nonlinear taxes: evidence from unobserved effects panel data models with censoring, selection and endogeneity," Review of Economics of the Household, Springer, vol. 14(1), pages 207-229, March.

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