Pierre André Chiappori (Columbia) "Family Economics" - Cemmap

234 5. Empirical issues for the collective model
either spouse’s wage rate reduces their share of the nonlabor income,
which in turn increases their labor supply through an income effect.
Indeed, both men’s and women’s labor supply elasticities with respect
to nonlabor income are negative and significant.
Recent empirical developments involving cooperative models of labor
supply include Donni (2003), which generalizes the standard approach to
corner solutions and non-linear budget constraints, and Blundell, Chiappori,
Magnac and Meghir (2007), who consider a model in which female
labor supply is continuous whereas male labor supply is discrete; they show
that the sharing rule can equally be recovered in this case. Moreau and
Donni (2002) also introduce distribution factors, applied to French data,
and take into account the non-linearity of taxation. Other empirical analyzes
include Bloemen (2009), Clark, Couprie and Sofer (2004) and Vermeulen
(2005) on Dutch, British and Belgian data respectively.
In a series of recently published papers, several authors apply the collective
model to welfare issues, including the impact of changes in the
tax/benefit system,indifferent European countries. The basic methodology,
as described in Vermeulen et al (2006), presents interesting features.
One is its scope: the approach addresses standard problems of welfare analysis
of labor supply, such as non linear taxation, non convex budget sets
and discrete participation decisions, within a collective framework. In addition,
individual preferences are more general than in the standard collective
model of labor supply (Chiappori 1988, 1992) in the sense that
they allow for interactions between individual leisures (that is, the marginal
utility of a spouse’s leisure is a function of the other spouse’s labor
supply). Since individual leisures are treated as public goods, the standard
identification results do not apply. The identification strategy relies on a
different assumption - namely, that the ‘direct’ trade-off between individual
leisure and consumption (disregarding the impact of the spouse’s leisure)
is identical for singles and married individuals, and can therefore be directly
estimated from the labor supply of singles; of course the additional,
‘external’ effect of one spouse’s leisure on the other’s utility can only be
estimated from the sample of married couples. This approach allows to calibrate
a collective model that can then be used for welfare analysis. Myck
et al. (2006) uses this framework to analyze the impact of a recent welfare
reform in the UK, namely the introduction of the Working Families’ Tax
Credit (WFTC). In particular, they consider two hypothetical versions of
the reform: one in which the recipient remains the main carer (as for the
previous Family Credit), and another in which the benefit ispaidtothe
main earner. The model allows to predict the impact of each version on the
spouses’ respective Pareto weights, and the corresponding labor supply responses;
they conclude that, indeed, the two versions have different impact
on individual labor supplies and ultimately welfares. Similar studies have
been undertaken in various countries, including Belgium, France, Germany,