Assessing the impact of taxes on female labor supply using a finite mixture approach

Jorgen Hansen and Peter Ericson
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Peter Ericson: Ministry of Finance, Drottinggatan 21, 10333 Stockholm, Sweden

Empirical Economics, 2000, vol. 25, issue 2, 279-296

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.

Keywords: Heterogeneity in preferences; finite mixtures; female labor supply; taxes; tax simulation (search for similar items in EconPapers)
JEL-codes: H24 J22 (search for similar items in EconPapers)
Date: 2000-05-24
Note: received: March 1998/final version accepted: October 1999
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