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Nonparametric Estimation of Labor Supply Functions Generated by Piece Wise Linear Budget Constraints

Author

Listed:
  • Blomquist, Sören

    (Department of Economics)

  • Newey, Whitney

    (Department of Economics)

Abstract
The basic idea in this paper is that labor supply can be viewed as a function of the entire budget set, so that one way to account non-parametrically for a nonlinear budget set is to estimate a nonparametric regression where the variable in the regression is the budget set. In the special case of a linear budget constraint, this estimator would be the same as nonparametric regression on wage and nonlabor income. Nonlinear budget sets will in general be charac-terized by many variables. An important part of the estimation method is a procedure to reduce the dimensionality of the regression problem. It is of interest to see if nonparametrically estimated labor supply functions support the result of earlier studies using parametric methods. We therefore apply parametric and nonparametric labor supply functions to calculate the effect of recent Swedish tax reform. Qualitatively the nonparametric and parametric labor supply functions give the same results. Recent tax reform in Sweden hasincreased labor supply by a small but economically important amount.

Suggested Citation

  • Blomquist, Sören & Newey, Whitney, 1997. "Nonparametric Estimation of Labor Supply Functions Generated by Piece Wise Linear Budget Constraints," Working Paper Series 1997:24, Uppsala University, Department of Economics.
    • Handle: RePEc:hhs:uunewp:1997_024
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    References listed on IDEAS

    as
    1. Richard Blundell & Alan Duncan & Costas Meghir, 1998. "Estimating Labor Supply Responses Using Tax Reforms," Econometrica, Econometric Society, vol. 66(4), pages 827-862, July.
    2. Hausman, Jerry A & Newey, Whitney K, 1995. "Nonparametric Estimation of Exact Consumers Surplus and Deadweight Loss," Econometrica, Econometric Society, vol. 63(6), pages 1445-1476, November.
    3. Thomas Aronsson & Mårten Palme, 1998. "A Decade of Tax and Benefit Reforms in Sweden: Effects on Labour Supply, Welfare and Inequality," Economica, London School of Economics and Political Science, vol. 65(257), pages 39-67, February.
    4. Blomquist, S.N., 1991. "Flexible Functional Forms and Coherency for Labor Supply Models," Papers 1991j, Uppsala - Working Paper Series.
    5. Andrews, Donald W. K., 1991. "Asymptotic optimality of generalized CL, cross-validation, and generalized cross-validation in regression with heteroskedastic errors," Journal of Econometrics, Elsevier, vol. 47(2-3), pages 359-377, February.
    6. Blomquist, N. Soren, 1983. "The effect of income taxation on the labor supply of married men in Sweden," Journal of Public Economics, Elsevier, vol. 22(2), pages 169-197, November.
    7. N. S. Blomquist & U. Hansson-Brusewitz, 1990. "The Effect of Taxes on Male and Female Labor Supply in Sweden," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 317-357.
    8. Whitney K. Newey, 1995. "Convergence Rates & Asymptotic Normality Estimators," Working papers 95-13, Massachusetts Institute of Technology (MIT), Department of Economics.
    9. Agell, S.A. & Meghir, C., 1995. "Male Labour Supply in Sweden : Are Incentives Important?," Papers 12, Uppsala - Working Paper Series.
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    More about this item

    Keywords

    Nonparametric estimation; labor supply; nonlinear budget constraints; tax reform;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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