Income Taxation in an Empirical Collective HouseholdLabour Supply Model with Discrete Hours

Most empirical studies on the impact of labour income taxation on the labour supplybehaviour of households use a unitary modelling approach. In this paper we empiricallyanalyze income taxation and the choice of working hours by combining the collectiveapproach for household behaviour and the discrete hours choice framework with fixed costsof work. We identify the sharing rule parameters with data on working hours of both thehusband and the wife within a couple. Parameter estimates are used to evaluate variousmodel outcomes, like the wage elasticities of labour supply and the impacts of wage changeson the income sharing between husband and wife. We also simulate the consequences of apolicy change in the tax system. We find that the collective model has different empiricaloutcomes of income sharing than a restricted model that imposes pooling of men’s earningsand the household’s non-labour income in the female’s budget constraint. These differencesin outcomes have consequences for the evaluation of a policy change in the tax system....