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Discrete Choice Modelling Of Labour Supply In Luxembourg Through Euromod Microsimulation

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Executive Summary

In this paper, the household labor supply is modeled as a discrete choice problem assuming that preference for leisure and consumption can be described by a quadratic utility function which allows for non-convexities in the budget set. The authors assess behavioral responses to the significant changes in the tax benefit system during 2001-2002 in Luxembourg. Only moderate impact is found, on average, on the efficiency of the economy as measured by the labor supply effects. The impact is indeed concentrated on richer single women. These increase significantly their labor force, which more than doubles the non-behavioral effect of the tax reform on disposable income and boosts the gains in well-being for that part of population

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