Labour Supply and Taxes: New Estimates of the Responses of Wives to Husbands' Wages

Benoit Dostie and Lene Kromann ()
Additional contact information
Lene Kromann: CEBR, Copenhagen

No 6392, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In this paper, we estimate income- and substitution- labour supply and participation elasticities for Canadian married women using data from the Survey of Labour and Income Dynamics 1996-2005. We use the Canadian Tax and Credit Simulator (CTaCS) and detailed information on the structure of income at the household level to compute the marginal tax rates faced by each individual. We then use these marginal tax rates to compute net own-wage, spouse-wage, and non-labour income. We show how the magnitude of the estimated elasticities varies depending on whether net or gross wages and income are used in the estimation procedure, and quantify biases caused by using average instead of marginal tax rates. Finally, because marginal tax rates vary significantly over the sample, we use quantile regressions to compare elasticities at different points of the hours distribution. Overall, our results show that public policies now have, on average, less scope for influencing hours of work than 10 years ago. However, the quantile results show that wives working fewer hours per week are more sensitive to changes in their own or spouses' wages.

Keywords: labour supply; elasticities; labour force participation; taxes; Canada (search for similar items in EconPapers)
JEL-codes: C25 H31 J22 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2012-02
New Economics Papers: this item is included in nep-lab, nep-lma and nep-pub
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Published - published in: Applied Economics, 2013, 45 (31), 4355-4368

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Related works:
Working Paper: Labour Supply and Taxes: New Estimates of the Responses of Wives to Husbands’ Wages (2012)
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