Nonparametric Estimation with Nonlinear Budget Sets

Abstract

Choice models with nonlinear budget sets are important in econometrics. In this paper we propose a nonparametric approach to estimation of choice models with nonlinear budget sets. The basic idea is to think of the choice, in our case hours of labor supply, as being a function of the entire budget set. Then

Declining Female Labor Supply Elasticities in the U.S. and Implications for Tax Policy: Evidence from Panel Data

“…Third, we linearize the budget set and employ an instrumental variables approach that relies on strong identification assumptions ). An alternative is to estimate a labor supply function incorporating the entire budget set (Burtless and Hausman, 1978;Blomquist and Newey, 2002;Kumar, 2008;Liang, 2011;Kumar, 2012).We also do not structurally model fixed costs and associated discontinuity in the labor supply curve and non-convexities in the budget constraint and instead rely on reduced form methods. Nevertheless, our tax policy implications are relatively unaffected by omission of work costs (Heim and Meyer, 2004).…”

Nonparametric structural estimation of labor supply in the presence of censoring

“…These assumptions are similar to those made by Blomquist and Newey (2002) except for the addition of z i . The independence between v i and x i that they require is relaxed to conditional independence given z i .…”

An ex-ante analysis of the effects of the UK Government's welfare reforms on labour supply in Wales

“…There is a particularly well developed literature in Sweden which has been internationally influential due to its high quality and methodological innovation. A series of papers by Blomquist and co-authors (Blomquist (1983), Blomquist, Hansson and Brusewitz (1990), Blomquist, Ecklof and Newey (2001), Blomquist and Newey (2002)), using several different methods, finds uncompensated wage elasticities that fall in fairly tight bands between 0.07 and 0.12. Studies using data from France (Bouguignon and Magnac (1990)), Germany (Kaiser et al (1992)), and the Netherlands (van Soest et al (1990), Euwals and van Soest (1999)) find a low degree of responsiveness of male hours of work to financial work incentives.…”