In presence of unobserved heterogeneity and “within group” errors, the contribution to the likelihood function for a given household is represented by
1 1
1 1
|
冱 冱 冱 冱
l p
g g
9
, , ,
, , ,
M m
J J
j j r j hus
j wife j j r
4
= r
d H
l l
l =
= =
= j
r m
jl
4 where g
j,hus
and g
j¢,wife
are defined in Equation 8 above.
V. Data
A. Description of the Data and Sampling Procedures
The data used in this paper are taken from the Swedish Income Distribution Survey HEK
. This is an annual survey conducted by Statistics Sweden and it contains infor- mation on labor market activities, demographic characteristics, and incomes for a ran-
dom sample of Swedish individuals. Information is also collected for their household members. The survey was initiated in 1975. The second survey took place in 1978;
since 1980 Statistics Sweden has conducted annual surveys. Each survey is a cross- sectional representative of the population and in this paper we pool data from the 1993
and 1999 surveys. The reason for choosing these two surveys is that they represent times of recession 1993 and economic growth 1999. Another reason is that this
provides us with data from before and after the changes in the SA benefit rules.
Information on individuals and households is obtained from three sources: vari- ous government registers, a phone interview, and income tax returns. Data on
incomes, wages, transfers, taxes, wealth, and educational attainments are collected from different government registers whereas information on capital gains or losses
is obtained from income tax returns. During the phone interviews, respondents are asked about individual and family characteristics, such as marital status, age and
number of children, labor supply, childcare expenses, and cost of living. We have supplemented the information in the surveys with data from the Swedish munici-
palities who provided information on SA benefit levels. As mentioned above, in 1993, the levels depend on the municipality in which the household resides, as well
as on the family composition, such as marital status, age, and number of children. In 1999, the benefit levels depend only on family composition and not on geo-
graphical location.
The sample used for estimation includes families that satisfy the following selec- tion criterion: i family contains a married or cohabitant couple with at least one child
younger than 18 in the household, ii family has no taxable wealth, iii the house- hold’s nonlabor income is less than the SA benefit level, and iv both parents must
be younger than 56 years old.
14
In addition to these selections, we also excluded fam- ilies where one or both parents were either full-time students, retired, or self-
employed. The reason for these sample selections is that they retain families who, apart from their labor income, are eligible for both SA and HA.
14. Only wealth above SEK 800,000 in 1993 SEK 900,000 in 1999 are subject to tax and only a few households are affected by this selection rule.
The Journal of Human Resources 1020
B. Variable Definitions
