A Structural Approach To Estimating The Effect Of Taxation On The Labor Market Dynamics Of Older Workers

The authors estimate a dynamic structural life-cycle model of employment, non-employment and retirement that includes endogenous accumulation of human capital and intertemporal non-separabilities in preferences. Additionally, the model accounts for the effect of the tax and transfer system on work incentives. The structural parameter estimates are used to evaluate the effects of a tax reform targeted at low income individuals on employment behavior and retirement decisions. The aim of this paper is to analyze how the labor market behavior of older individuals responds to the incentives provided by the tax and transfer system. Given their analysis, it is appropriate to work within a dynamic structural life-cycle model of labor supply.