Scandinavian Working Papers in Economics

Working Paper Series, Center for Fiscal Studies,
Uppsala University, Department of Economics

No 2009:6: Nonparametric Structural Estimation of Labor Supply in the Presence of Censoring

Che-Yuan Liang ()
Additional contact information
Che-Yuan Liang: Uppsala Center for Fiscal Studies, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

Abstract: This paper extends the nonparametric method to estimate labor supply developed by Blomquist and Newey (2002) to handle cases in which there are individuals who do not work. The method is then applied to married women in Sweden from 1973 to 1999. For 1999, I find an aggregate uncompensated wage elasticity around 1 and an aggregate income elasticity around -0.05. Furthermore, marginal tax rates are beyond the net government revenue maximizing rates. Despite large labor supply effects, the dramatic evolution of the tax system can only explain a small share of the 58 percent rise in female labor supply during this period.

Keywords: female labor supply; nonparametric estimation; nonlinear budget sets; tax revenues

JEL-codes: C14; D31; H31; J22

48 pages, May 18, 2009

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