The Impact of Tax-Benefit Reforms on Labor Supply in a Simulated Nash-bargaining Framework

Several theoretical contributions have suggested to model household behavior as a Nash-bargaining game. Yet very few attempts
have been made to operationalize cooperative models of labor supply for policy analysis. In this paper, we implement a Nash-bargaining
model with external threat points (divorce) into the microsimulation of tax-benefit policy reforms in France. The observation
of divorced individuals is used to predict outside options and (some) of the preferences for individuals living in couples.
Benchmark simulations are conducted in a way that guarantees consistency with the Nash bargaining setting, regularity conditions
and observed behavior. We examine how the labor supply of couples adjusts to shocks on threat points, either hypothetical
or generated by a radical tax-benefit reform.