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Discrete choice models of labour supply, behavioural microsimulation and the Spanish tax reforms

Jose Labeaga, Xisco Oliver and Amadéo Spadaro
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Amadéo Spadaro: UIB - Universitat de les Illes Balears, PJSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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Abstract: The aim of the present study is to show the potential of behavioural microsimulation models as powerful tools for the ex ante evaluation of public policies. We analyse the impact of recent Spanish income tax reforms upon efficiency and household and social welfare and study the effects of various (basic-income and vital-minimum) flat tax schemes. The analysis is performed using a microsimulation model in which labour supply is explicitly taken into account. Instead of following the traditional continuous approach (Hausman, Labour supply, Aaron and Pechman (eds.), How Taxes Affect Economic Behaviour, The Brooking Institution, Washington, DC, 1981; Econometrica, 53: 1255-1282, 1985; Taxes and labour supply, Auerbach and Feldstein, (eds.), Handbook of Public Economics, North-Holland, Amsterdam, vol. 1, 1979), we estimate the direct utility function employing the methodology proposed by Aaberge et al. (Scand. J. Econ., 97: 635-659, 1995) and Van Soest (J. Hum. Resour., 30: 63-88, 1995). We maintain population heterogeneity by applying a social welfare analysis to the complete sample, rather than merely focusing on the active population. The source of our data is a sample of Spanish individuals in the 1995 wave of the EC Household Panel. We find that the redistribution policies considered have only had a minor impact on economic efficiency but, by contrast, have significantly affected social welfare.

Date: 2008-09
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Published in Journal of Economic Inequality, 2008, 6 (3), pp.247-263. ⟨10.1007/s10888-007-9057-9⟩

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Journal Article: Discrete choice models of labour supply, behavioural microsimulation and the Spanish tax reforms (2008) Downloads
Working Paper: Discrete choice models of labour supply, behavioural microsimulation and the Spanish tax reforms (2008)
Working Paper: Discrete choice models of labour suppluy, behavioural microsimulation and the Spanish tax reform (2005) Downloads
Working Paper: Discrete choice models of labour suppluy, behavioural microsimulation and the Spanish tax reform (2005) Downloads
Working Paper: Discrete choice models of labour Supply, behavioural microsimulation and the Spanish tax reforms Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00754269

DOI: 10.1007/s10888-007-9057-9

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