Abstract: I examine the impact of taxation on family labor supply and test economic models of the family by analyzing responses to the Tax Reform of 1991 in Sweden, known as the "tax reform of the century" because of its large magnitude. Using detailed administrative panel data on approximately 11% of the married Swedish population, I find that husbands and wives react substantially to their own marginal tax rates and to their spouses' rates. The estimates imply that husbands' leisure and wives' leisure are complements in the full sample. I test and reject a set of models in which the family maximizes a single utility function. The standard econometric labor supply specification, in which one spouse reacts to the other spouse's income as if it were unearned income, yields biased coefficient estimates. Uncompensated labor supply elasticities are over-estimated by a factor of more than three, and income effects are of the wrong sign. Overall, the results suggest that there is interplay between spouses' labor supply decisions, and that taking account of this joint aspect of their decision-making may change our conclusions about labor supply responses to taxation.
Abstract: The supply elasticity of military enlistments with respect to military pay is crucial in determining the cost of increasing the number of military personnel, and in choosing between a system of voluntary military service and conscription. To estimate this elasticity, I introduce two new approaches that rely on very different sources of variation, but yield similar answers. First, I instrument for the military wage, which is potentially endogenous to recruiting conditions, using the statutory formula that usually governs increases in the military wage. Second, I instrument for civilian earnings using exogenous shocks to national industrial employment interacted with state industrial composition. Using Department of Defense administrative data on all enlistment contracts signed by recruits over 16 recent years, these approaches show supply elasticities centering around 1.5. This suggests that attracting military enlistments is substantially less costly than previous estimates have implied.
Abstract: How 401(k) eligibility affects saving is a major unresolved issue. I address this question by exploiting a plausibly exogenous change in 401(k) eligibility: Some individuals are ineligible for their firm’s 401(k) plan when they begin to work at the firm, but become eligible when they have worked at the firm long enough. I find that 401(k) eligibility raises saving in the 401(k) substantially, but I find no evidence that 401(k) saving is offset by decreases in other financial assets. I also find no evidence that the increase in saving following 401(k) eligibility is driven by intertemporal subsitution. In response to 401(k) eligibility, accumulation of durable goods decreases significantly, providing the most direct existing evidence of a decrease in consumption in response to eligibility.
Abstract: This paper examines performance in a tournament setting with different levels of inequality in rewards and different provision of information about individuals' skill at the task prior to the tournament. We find that the total tournament output depends on inequality according to an inverse U shaped function: We reward subjects based on the number of mazes they can solve, and the number of solved mazes is lowest when payments are independent of the participants' performance; rises to a maximum at a medium level of inequality; then falls at the highest level of inequality. These results are strongest when participants know the number of mazes they solved relative to others in a pre-tournament round and thus can judge their likely success in the tournament. Finally, we find that cheating/fudging on the experiment responds to the level of inequality and information about relative positions. Our results support a model of optimal allocation of prizes in tournaments that postulates convex cost of effort functions.
Changes in the Prevalence and Duration of Spells without Health Insurance (with David M. Cutler), January 2007 Revise and resubmit, New England Journal of Medicine
Abstract: Policy-makers have recently proposed ways of covering more of the uninsured, but little data indicate how the prevalence and duration of uninsured spells is changing over time. To address this question, we examined two Survey of Income and Program Participation (SIPP) datasets, one covering 1983-6, the other covering 2001-4. For each set of years, we estimated the probability of suffering an uninsured spell, along with a Cox competing risk model for obtaining private and public insurance. The results indicate that in the population as a whole, uninsured spells have become more prevalent, but shorter. The share of the population with an uninsured spell rose from 33.9% in 1983-6 to 37.5 % in 2001-4. The share with a spell increased markedly among the least educated, and decreased slightly among the most educated. The share of new spells ending within 24 months rose from 73.8% to 79.7%. Increases were experienced for all age and education groups. Transition from uninsured to private insurance fell, whereas transition to public insurance rose. These results portend difficulties if private coverage continues to decline and is not offset by further expansions of public insurance.
Labor Supply Responses to Taxation: A Structural Approach to Differences-in-Differences Estimation, work in progress
Abstract: I develop a method of estimating labor supply responses to taxation that aims to combine the best features of existing reduced form and structural approaches: Reduced form methods rely on exogenous variation from policy changes, whereas structural methods take account of the fact that individuals respond to choices they face over their entire budget sets. Individuals’ labor supply choices are observed before and after a policy change that generates exogenous variation in their budget sets. Hausman’s (1981) approach is extended from a cross section to a panel, by maximizing the likelihood of observing the individual’s choices both before and after the policy change. Individual-level unobserved effects are removed with a Chamberlain device. Using the IRS-Michigan-NBER Tax Panel, results under this technique are compared to those under the traditional reduced form and structural approaches.
© 2007 by the President and Fellows of Harvard College