Nonparametric Estimation of Labor Supply Functions Generated by Piece Wise Linear Budget Constraints

The basic idea in this paper is that labor supply can be viewed as a function of the entire budget set, so that one way to account non-parametrically for a nonlinear budget set is to estimate a nonparametric regression where the variable in the regression is the budget set. In the special case of a linear budget constraint, this estimator would be the same as nonparametric regression on wage and nonlabor income. Nonlinear budget sets will in general be charac-terized by many variables. An important part of the estimation method is a procedure to reduce the dimensionality of the regression problem.