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The Effect of Financial Incentives on Labour Supply: Evidence for Lone Parents from Microsimulation and Quasi-Experimental Evaluation

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Author Info

  • Lixin Cai
  • Guyonne Kalb
  • Yi-Ping Tseng
  • Ha Vu

Abstract

The aim of this paper is to analyse the work incentive effects of a change in the Australian tax and transfer system on lone parents in July 2000. To evaluate the effect of the total change only, microsimulation can be used; but for a subgroup of lone parents, a few components of this policy change can be analysed through two alternative approaches - microsimulation and quasi-experimental evaluation. Both approaches examine the effects on the probability of employment and on average working hours. The results from microsimulation show that the combined changes introduced in July 2000 - involving reduced withdrawl rates, changed family payments and lower income tax rates - have increased labour supply for lone parents to a moderate extent. The estimated effect on average working hours when using microsimulation is very close to the effect estimated in a quasi-experimental approach using matching techniques to control for alternative influences. Copyright (c) 2008 The Authors Journal compilation (c) Institute for Fiscal Studies, 2008.

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Bibliographic Info

Article provided by Institute for Fiscal Studies in its journal Fiscal Studies.

Volume (Year): 29 (2008)
Issue (Month): 2 (06)
Pages: 285-325

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Handle: RePEc:ifs:fistud:v:29:y:2008:i:2:p:285-325

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  1. Imbens, Guido & Abadie, Alberto, 2008. "On the Failure of the Bootstrap for Matching Estimators," Scholarly Articles 3043415, Harvard University Department of Economics.
  2. John Creedy & Guyonne Kalb, 2003. "Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation," Melbourne Institute Working Paper Series wp2003n16, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  3. Duncan, Alan & Harris, Mark N, 2002. "Simulating the Behavioural Effects of Welfare Reforms among Sole Parents in Australia," The Economic Record, The Economic Society of Australia, vol. 78(242), pages 264-76, September.
  4. Jeff Borland & Yi-Ping Tseng, 2003. "How Do Administrative Arrangements Affect Exit from Unemployment Payments? The Case of the Job Seeker Diary in Australia," Melbourne Institute Working Paper Series wp2003n27, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  5. Dehejia, R.H. & Wahba, S., 1998. "Propensity Score Matching Methods for Non-Experimental Causal Studies," Discussion Papers 1998_02, Columbia University, Department of Economics.
  6. John Creedy & Guyonne Kalb & Hsein Kew, 2001. "The Melbourne Institute Tax and Transfer Simulator (MITTS)," Melbourne Institute Working Paper Series wp2001n16, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  7. Heckman, James J & Ichimura, Hidehiko & Todd, Petra, 1998. "Matching as an Econometric Evaluation Estimator," Review of Economic Studies, Wiley Blackwell, vol. 65(2), pages 261-94, April.
  8. Guyonne Kalb & Rosanna Scutella, 2002. "Estimation of Wage Equations in Australia: Allowing for Censored Observations of Labour Supply," Melbourne Institute Working Paper Series wp2002n08, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  9. Richard Blundell & Alan Duncan & Julian McCrae & Costas Meghir, 2000. "The labour market impact of the working families’ tax credit," Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 75-103, March.
  10. Jeffrey Smith & Petra Todd, 2003. "Does Matching Overcome Lalonde's Critique of Nonexperimental Estimators?," University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers 20035, University of Western Ontario, CIBC Centre for Human Capital and Productivity.
  11. Arulampalam, W. & Robin A. Naylor & Jeremy P. Smith, 2002. "University of Warwick," Royal Economic Society Annual Conference 2002 9, Royal Economic Society.
  12. Richard Blundell & Monica Costa Dias, 2000. "Evaluation methods for non-experimental data," Fiscal Studies, Institute for Fiscal Studies, vol. 21(4), pages 427-468, January.
  13. Hilary Hoynes & Richard Blundell, 2001. "Has "In-Work" Benefit Reform Helped the Labour Market?," NBER Working Papers 8546, National Bureau of Economic Research, Inc.
  14. Rajeev H. Dehejia & Sadek Wahba, 1998. "Causal Effects in Non-Experimental Studies: Re-Evaluating the Evaluation of Training Programs," NBER Working Papers 6586, National Bureau of Economic Research, Inc.
  15. John Creedy & Guyonne Kalb & Hsein Kew, 2003. "Flattening the Effective Marginal Tax Rate Structure in Australia: Policy Simulations Using the Melbourne Institute Tax and Transfer Simulator," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 36(2), pages 156-172.
  16. Richard Blundell & Monica Costa Dias & Costas Meghir & John Van Reenen, 2001. "Evaluating the employment impact of a mandatory job search assistance program," IFS Working Papers W01/20, Institute for Fiscal Studies.
  17. Guyonne Kalb & Hsein Kew & Rosanna Scutella, 2005. "Effects of the Australian New Tax System on Income Tax and Benefits with and without Labour Supply Responses," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 38(2), pages 137-158, 06.
  18. Guyonne Kalb, 2002. "Estimation of Labour Supply Models for Four Separate Groups in the Australian Population," Melbourne Institute Working Paper Series wp2002n24, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  19. Arthur van Soest, 1995. "Structural Models of Family Labor Supply: A Discrete Choice Approach," Journal of Human Resources, University of Wisconsin Press, vol. 30(1), pages 63-88.
  20. Denise J. Doiron, 2004. "Welfare Reform and the Labour Supply of Lone Parents in Australia: A Natural Experiment Approach," The Economic Record, The Economic Society of Australia, vol. 80(249), pages 157-176, 06.
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Cited by:
  1. Bargain, Olivier & Doorley, Karina, 2013. "Putting Structure on the RD Design: Social Transfers and Youth Inactivity in France," IZA Discussion Papers 7508, Institute for the Study of Labor (IZA).
  2. Yin King Fok & Sung-Hee Jeon & Roger Wilkins, 2009. "Does Part-Time Employment Help or Hinder Lone Mothers Movements into Full-Time Employment?," Melbourne Institute Working Paper Series wp2009n25, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  3. Eugenio Zucchelli & Andrew M Jones & Nigel Rice, 2012. "The evaluation of health policies through dynamic microsimulation methods," International Journal of Microsimulation, Interational Microsimulation Association, vol. 5(1), pages 2-20.
  4. Zucchelli, E & Jones, A.M & Rice, N, 2010. "The evaluation of health policies through microsimulation methods," Health, Econometrics and Data Group (HEDG) Working Papers 10/03, HEDG, c/o Department of Economics, University of York.
  5. John Creedy & Nicolas Hérault, 2009. "Optimal Marginal Income Tax Reforms: A Microsimulation Analysis," Melbourne Institute Working Paper Series wp2009n23, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  6. Alan S Duncan & Mark N Harris & Anthony Harris & Eugenio Zucchelli, 2013. "The Influence of Psychological Well-being, Ill Health and Health Shocks on Single Parents' Labour Supply," Bankwest Curtin Economics Centre Working Paper series WP1307, Bankwest Curtin Economics Centre (BCEC), Curtin Business School.
  7. Thor O. Thoresen & Trine E. Vattø, 2013. "Validation of structural labor supply model by the elasticity of taxable income," Discussion Papers 738, Research Department of Statistics Norway.
  8. Guyonne Kalb & Thor Thoresen, 2010. "A comparison of family policy designs of Australia and Norway using microsimulation models," Review of Economics of the Household, Springer, vol. 8(2), pages 255-287, June.
  9. Ha Vu, 2012. "The Relationship between Labor Market Conditions and Welfare Receipt in Australia: A Stock-Flow Analysis," ANU Working Papers in Economics and Econometrics 2012-573, Australian National University, College of Business and Economics, School of Economics.

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