Estimate Of The Frisch Elasticity

Frisch elasticity is an important parameter in Macroeconomics, and the basis for analyzing how tax policy and welfare system should change individual's labor supply. Based on the Chinese Health and Nutrition Survey (CHNS) and Chinese Household Income Project (CHIP), this paper employs two approaches to estimate the Frisch elasticity in China. The first approach uses the labor supply from the previous period as a control for marginal utility of wealth. The results indicate that the Frisch elasticity in China is positive but small. The second approach uses synthetic cohort to represent the labor supply of a representative consumer. The results indicate the Frisch elasticity is negative. The results of two methods suggest that measurement error may play an important role in estimating.