Labour Supply and Income Taxation: Estimation and Simulation Exercise for Finland

Mika Kuismanen ()
Additional contact information
Mika Kuismanen: European Central Bank, Research Department, Germany

Finnish Economic Papers, 2005, vol. 18, issue 1, 16-18

Abstract: It is well known that the estimation of a labour supply function is complicated because of the non-linear budget constraint an individual faces. This non-linearity may arise from a variety of reasons - the structure of the tax/benefit scheme, overtime rates etc. Non-linearities also cause problems when it comes to interpreting the policy implications of the estimates. In this study we first estimate two well-structured econometric labour supply models which mimic the actual budget constraints as closely as possible. Utilising estimation results we construct a microsimulation model to analyse different income tax regimes and systems to the labour supply. Our simulation results show that none of the proposed reforms are self-financing. A revenue neutral proportional tax system does not have major effects on labour supply. The biggest behavioural responses are achieved if we reduce the marginal tax rates from the lower end of the state income tax schedule.

JEL-codes: C31 H24 J22 (search for similar items in EconPapers)
Date: 2005
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.taloustieteellinenyhdistys.fi/images/st ... p12005_kuismanen.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fep:journl:v:18:y:2005:i:1:p:16-18

Access Statistics for this article

More articles in Finnish Economic Papers from Finnish Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Editorial Secretary ( this e-mail address is bad, please contact ).