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.
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First version received: March 1998/final version accepted: October 1999
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Ericson, P., Hansen, J. Assessing the impact of taxes on female labor supply using a finite mixture approach. Empirical Economics 25, 279–296 (2000). https://doi.org/10.1007/s001819900017
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DOI: https://doi.org/10.1007/s001819900017