Heim, Bradley T. 2009. “Structural Estimation of Family Labor Supply with Taxes: Estimating a Continuous Hours Model Using a Direct Utility Specification.” Journal of Human Resources 44(2): 350–385.
This paper proposes a new method for estimating family labor supply in the presence of taxes. This method accounts for continuous hours choices, measurement error, unobserved heterogeneity in tastes for work, the nonlinear form of the tax code, and fixed costs of work in one comprehensive specification. Estimated on data from the 2001 PSID, the resulting elasticities for married males are consistent with those found elsewhere in the literature but female wage elasticities are substantially smaller than those found in most of the literature. Simulations of recent tax acts predict small effects on the labor supply of married couples.
Bradley Heim is a Financial Economist in the Office of Tax Analysis, U.S. Department of the Treasury. Substantial work on this paper was completed when the author was an Assistant Professor at Duke University. He wishes to thank Joe Altonji, Peter Arcidiacono, Eric French, Hilary Hoynes, Marjorie McElroy, Bruce Meyer, Robert Triest, seminar participants at the University of Virginia, the 2003 North American Summer Meetings of the Econometric Society, and the 2004 Annual Meetings of the National Tax Association, and two anonymous referees for helpful advice and comments. He takes responsibility for all remaining errors. The views expressed are those of the author and do not necessarily reflect those of the Department of the Treasury. The data used in this article can be obtained beginning October 2009 through September 2012 from Bradley T. Heim, Office of Tax Analysis, U.S. Department of Treasury, Room 4036B, 1500 Pennsylvania Ave NW, Washington, DC 20220, or Bradley.Heim@do.treas.gov.