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Income Distribution Effects of a Finnish Work Incentive Trap Reform

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  • Paivi Mattila-Wiro

Abstract

The present study concentrates on the income distribution effects of A Finnish Work Incentive Trap Reform started in 1996. I estimate how the reforms made have affected income levels and income inequality - the distribution of economic wellbeing. I look at the effects both without and with behavioral response. The data used is the Income Distribution Statistics of Statistics Finland from the years 1996 and 1998. The empirical part of the study is based on a microsimulation model. The method of microsimulation is a powerful tool for the analysis of ex post evaluation of policy reforms. However, the method is rarely and on very few occasions applied in Finland. The results drawn without behavioral response show that the 1996 data with the 1998 legislation produces lower values for income inequality measures and higher average income levels for almost all income decile groups compared to those with the 1996 legislation. However, the changes are very small. When the labor supply effect is included, the lowest incomes rise only very little (in fact, hardly at all) and the Gini coefficient remains unaltered.

Suggested Citation

  • Paivi Mattila-Wiro, 2009. "Income Distribution Effects of a Finnish Work Incentive Trap Reform," Journal of Artificial Societies and Social Simulation, Journal of Artificial Societies and Social Simulation, vol. 12(3), pages 1-3.
    • Handle: RePEc:jas:jasssj:2008-45-3
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    References listed on IDEAS

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    1. Richard Blundell & Alan Duncan & Costas Meghir, 1998. "Estimating Labor Supply Responses Using Tax Reforms," Econometrica, Econometric Society, vol. 66(4), pages 827-862, July.
    2. Karl Ove Aarbu & Thor Olav Thoresen, 1997. "The Norwegian Tax Reform; Distributional Effects and the High-income Response," Discussion Papers 207, Statistics Norway, Research Department.
    3. 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.
    4. Sen, Amartya, 1997. "On Economic Inequality," OUP Catalogue, Oxford University Press, number 9780198292975.
    5. Mattila-Wiro, Päivi, 2006. "Changes in the Distribution of Economic Wellbeing in Finland," Research Reports 128, VATT Institute for Economic Research.
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    Cited by:

    1. Vanesa Jorda & Jose M. Alonso, 2020. "What works to mitigate and reduce relative (and absolute) inequality?: A systematic review," WIDER Working Paper Series wp-2020-152, World Institute for Development Economic Research (UNU-WIDER).

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