It has been observed that the labour supply of married women is sensitive to
wage rate and nonwage income as well as to other socio-economic variables. It is of
interest, for economists and policy makers, to measure the effects of taxes and transfer
payments on the labour supply and welfare of married women. In the last two
decades, much effort has been devoted to the development of the theory of labour
supply and to the application of this theory to policy analysis.
This thesis intends to contribute to the study of labour supply on three counts. A
usual way of estimating a system of labour supply and a demand functions is to
estimate the labour supply function only, and parameters in the demand function are
identified by the budget constraint and the labour supply function. We will discuss that
a labour supply function estimated in this way is valid even if there exists a certain
form of an unobservable transaction cost We also show that, under certain types of
nonlinear budget constraints, the utility consistency of the labour supply function can
be examined in a similar way to that of the labour supply function with linear budget
constraints, and dual functions and identities still hold. Moreover, we develop a
method of estimating utility consistent labour supply under an endogenous market
wage rate.
Individuals generally pay labour market entry costs such as the expenses of
transportation, uniforms, child care, and self education. A part of these entry costs is
paid for indirectly by the government through the deduction of these expenses from
taxable income and through subsidies for child care. Our second contribution is to
derive a numerical expression for the effects, on labour supply and earnings, of two
types of subsidies for market entry, and to measure these effects using Australian data.
The estimation result shows that if the government gave a lump sum subsidy to all
working wives, a one dollar subsidy will increase an average wife's wage income by 1.10,andifthegovernmentgaveasubsidythatwasproportionaltothenumberofhoursworked,toallworidngwives,aonedollarsubsidywouldincreaseanaveragewifeโฒswageincomeby2.36.
Our third contribution is to estimate a labour supply function with piecewiselinear
budget constraints, and to assess several tax reforms. We shall focus especially
on the difference between a tax system under which tax rates are based on individual
income (individual-income-based tax system) and a tax system under which tax rates
are based on a couple's joint income (joint-income-based tax system). We find that if
both the pre-reform tax system and the post-reform tax system are based on individual
income, introducing a single rate tax system will reduce the work effort of married
women, and increase the excess burden of taxes. On the other hand, if both the pre-reform
tax system and the post-reform tax system are joint-income-based, introducing
a single rate tax system would encourage the work effort of married women, and
reduce the excess burden of taxes. A lesson from this result is that similar tax reforms
may have quite different effects on the labour supply and the welfare of married
women according to whether the tax rate is based on individual income or on a
couple's joint income