Improving the modeling of couples' labour supply

Labour force Australia

Using an improved version of the neoclassical labour-supply model, Robert Breunig, Deborah A. Cobb-Clark and Xiaodong Gong analyse the expected impact of the 2005-06 Australian tax reform. They calculate working hours to increase by 1.7 per cent for both men and women and household after-tax incomes to increase by approximately $60 per week on average. For families with two wage earners, each earning between $25,000 and $55,000 per year, their model predicts an after-tax increase in income of $38 after accounting for these labour supply effects - much larger than the Australian government's own prediction of $12, which does not allow for labour supply effects.

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