Information, habits, and consumption behavior: evidence from micro data

Most of the empirical literature on consumption behaviour over the last decades has focused on estimating Euler equations. However, there is now consensus that data-related problems make this approach unfruitful, especially for answering policy relevant issues. Alternatively, many papers have proposed using the consumption function to forecast behaviour. This paper follows in this tradition, by deriving an analytical consumption function in the presence of intertemporal non-separabilities, "superior information", and income shocks of different nature, both transitory and permanent. The results provide evidence for durability, and show that people are relatively better at forecasting short-term rather than long-term shocks JEL Classification: D11, D12, D82, E21Consumption, Durability, habit persistence, panel data, Superior Information

Labour Supply and Income Tax Changes: A Simulation Study for Finland

It is well known that estimation of the labour supply function is complicated by the non-linearity of the individual’s budget constraint. Non-linearity may be caused by a number of factors such as the structure of the tax/benefit scheme or overtime rates. Non-linearities also cause problems in interpreting the policy implications of the estimates. In this study we use a well-structured econometric labour supply model that mimics actual budget constraints as closely as possible to analyse the labour-supply effects of different income tax regimes and systems. In addition to the empirically-specified labour supply model, we construct, for the first time in Finland, a behavioural microsimulation model. Our intent is to contribute to the tax debate in Finland by simulating several suggested changes in the tax system. Our simulation results show that none of the proposed reforms are self-financing. Revenue-neutral move to a proportional tax system does not have major effects on labour supply. The most pronounced behavioural effects are achieved when marginal tax rates are reduced at the lower end of the income tax schedule.microsimulation; labour supply; taxation

Piece-wise or differentiable budget constraint? Estimating labour supply function for Finnish females

Various estimation approaches have been used in recent literature to study the effect of nonlinear income taxation on labour supply. Different techniques and data sets have produced a wide range of income and substitution elasticities. In this study, we utilize register data provided by the tax authorities. This gives us good possibilities to construct detailed budget constraints for each individual in our sample. We estimate labour supply function using the piece-wise linear budget constraint approach and the differentiable budget constraint approach suggested by MaCurdy et al. (1990). Our results support the view that if one is able to mimic the actual budget set closely and if the degree of progression is high then these two methods are likely to produce similar results. Some sensitivity analysis is also carried out using alternative assumptions concerning the budget sets.

Labour Supply, Unemployment and Income Taxation: An Empirical Application for Finnish Females

Työn tarjontafunktion estimointi on useimmissa tapauksissa perustunut olettamukseen, että yksilöt voivat valita haluamansa työtuntimäärän. Toisen vahvan olettamuksen mukaan yksilöt, jotka eivät ole työskennelleet, eivät halua työskennellä. Molemmat oletukset ovat kumottavissa tarkastelemalla tarkemmin mikrotason aineistoa. Tässä tutkimuksessa sovelletaan Blundellin, Hamin ja Meghirin kehittämää empiiristä mallia, jossa otetaan työn tarjontafunktiota estimoitaessa huomioon työttömät ja työtä etsivät yksilöt. Työssä yleistetään ym. mallia ottamalla huomioon myös ei-lineaarinen tuloverojärjestelmä. Aineistona käytetään työvoimatutkimuksen vuosihaastatteluja vuosilta 1987, 1989, 1991 ja 1993. Saadut estimointitulokset indikoivat, että aikaisemmissa tutkimuksissa saadut palkka- ja tulojoustojen arvot voivat olla ylöspäin harhaisia käytetyn ekonometrisen lähestymistavan vuoksi

Labour Supply and Income Taxation: Estimation and Simulation Exercise for Finland

It is well known that the estimation of a labour supply function is complicated because of the non-linear budget constraint an individual faces. This non-linearity may arise from a variety of reasons - the structure of the tax/benefit scheme, overtime rates etc. Non-linearities also cause problems when it comes to interpreting the policy implications of the estimates. In this study we first estimate two well-structured econometric labour supply models which mimic the actual budget constraints as closely as possible. Utilising estimation results we construct a microsimulation model to analyse different income tax regimes and systems to the labour supply. Our simulation results show that none of the proposed reforms are self-financing. A revenue neutral proportional tax system does not have major effects on labour supply. The biggest behavioural responses are achieved if we reduce the marginal tax rates from the lower end of the state income tax schedule.

Empirical essays on non-linear income taxation and labour supply

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