Identifying Interdependent Behaviour in an Empirical Model of Labour Supply

Thomas Aronsson, Sören Blomquist and Hans Sacklen

Journal of Applied Econometrics, 1999, vol. 14, issue 6, 607-26

Abstract: In this paper we test a particular form of interdependent behaviour, namely the hypothesis that individuals' choices of hours of work are influenced by the average hours of work in a social reference group. There are problems in empirically disentangling the effects of interdependent behaviour and preference variation across groups. We show that panel data or data from several points in time are needed. In the empirical analysis we combine cross-section data from 1973, 1980, and 1990. Our results support the hypothesis of interdependent behaviour. The implication is that conventional tax policy predictions, in which preference interdependencies are neglected, will tend to underestimate the effect of a tax reform on hours of work. Our point estimates suggest that conventional calculations would capture only about a third of the actual change in hours of work.

Date: 1999
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Working Paper: Identifying Interdependent Behavior in an Empirical Model of Labor Supply (1998)
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