We estimate a microeconometric model of household labor supply which features: simultaneous treatment of spouses’ decisions exact representation of complex tax rules quantity constraints on the choice of hours of work choice among jobs that differ with respect to hours, wage rate and other characteristics

There are a certain number of jobs in the opportunity set B  (w,h,  ) = density of jobs of type (w,h,  )  (w,h,  ) = p(w,h)×v(  ) v(  ) is a Type I extreme-value density B also includes (0,0,  )

The opportunity set in the traditional approach h w T 0

The opportunity set in our model (the numbers represent hypothetical densities or relative frequencies of alternatives in the corresponding “spot”) h w

We also assume

The choice probability turns out to be:

Empirical Specification Utility function Opportunity density p(w,h)

The data We use the Bank of Italy’s Survey of Household Income and Wealth 1993 Individuals must belong to the age group The selected sample contains 2160 couples, 206 single males and 301 single females

Own wage labour supply elasticity by income decile Singles

Own wage labour supply elasticity by income decile Couples

3-parameter tax-transfer rules

Grid of constant tax revenue points

Socially Optimal Tax Rules For Different Degrees of Inequality Aversion (k)

K = 0.1 t 1 = 0.77, t 2 = 0.77, T =

K = 0.2 t 1 = 0.67, t 2 = 0.67, T =

K = 0.3 t 1 = 0.76, t 2 = 0.56, T =

K = 0.4 t 1 = 0.02, t 2 = 0, T = 5500 t 1 = 0.76, t 2 = 0.56, T =

K = 0.5 t 1 = 0, t 2 = 0, T = 5792 t 1 = 0.38, t 2 = 0.13, T = -2740

K =  t 1 = 0, t 2 = 0, T = 5792 t 1 = 0.37, t 2 = 0, T = -1000