Positive and normative analysis of tax policy: Does the representation of the household decision process Matter? Evidence for France. Paper presented at the EEA’02 meeting in

Abstract

Abstract The burgeoning literature on collective models has recently focused on attempts to estimate such models of household behaviour. However, no simple econometric technique is available when accounting for participation decisions and tax-bene…t system leading to non-linear and possibly non-convex budget sets. This delays the use of collective models for policy recommendation purposes. Relying on cruder calibration techniques to …ll the gap is thus necessary. The paper …rst suggests a piecemeal approach to simulate labour supply using a collective model with taxation. The second contribution is to compare the predictions in term of policy analysis between the unitary and the collective models. The exercise consists in assessing a current French tax reform using a unitary model estimated on data generated by the collective one. The size of errors from the unitary model, both on positive and normative conclusions, suggests that more e¤ort should be devoted to the estimation and operationalization of collective models with taxation