It is a well-established fact that econometrician do not wth certainty the preferences of households. Thus to the econometrician the preferences are random and probabilites can be derived to describe the behavior of the agents. This has been done by sever al reasearchers over the last two decades. However, none have employed these models to derive Slutsku elasticities. This is what we do in this project and we can demonstrate that the Slutsky elasticities are much lower than in traditional models. This imp lies that the marginal costs of taxation may have been overestimated in previous works.
How taxes affect behavior depend on the alternatives that the agents can choose between and characteristics of the individuals with respect to education, familiy stat us and age. In this project we estimate dynamic labor supply models on labor market transition data covering a large part of the Norwegian population. The period covered is 1996-2005. The models will be used to assess the impact of behavior when the tax s tructure is made less progressive as happened in 2005.