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Is the Household Demand for In-Home Services Sensitive to Tax Reductions? The French Case

Anne Flipo (), Denis Fougere () and Lucile Olier ()
Additional contact information
Anne Flipo: CREST-INSEE
Lucile Olier: CREST-INSEE

No 1392, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Our paper examines the impact of tax reductions on the demand for services in the home. For that purpose, we estimate a structural model of demand for such services by using household individual data collected by INSEE (Paris) in 1996. In this model, the net hourly wage paid to the domestic employee, the household preferences for consumption of in-home services and the decision to take advantage of the tax reduction are considered as endogenous variables. Estimation of the econometric model uses the fact that some households are observed to consume domestic services and to take advantage of the tax reduction, while others either consume such services but do not take advantage of the tax reduction, or do not consume these services at all. Its identification relies on an exclusion restriction resulting from the tax credit schedule. Results show that the probability of consuming in-home services increases with age and income. A ten per cent increase in the tax reduction would increase from 45.9 to 50.8 per cent the proportion of households benefiting from the tax reduction among those who consume paid in-home services. Moreover, 13.5 per cent of households who do not actually consume such services would do so after the ten per cent increase in the tax reduction. These simulated variations would mainly concern high-income households.

Keywords: services in the home; tax reduction; household demand; labor cost (search for similar items in EconPapers)
JEL-codes: D13 J12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec
Date: 2004-11
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Published in: Journal of Public Economics, 2007, 91 (1-2), 365-385

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Related works:
Journal Article: Is the household demand for in-home services sensitive to tax reductions? The French case (2007) Downloads
Working Paper: Is the Household Demand for In-Home Services Sensitive to Tax Reductions? The French Case (2000) Downloads
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