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Forecasting Behavioural and Distributional Effects of the Bofinger-Walwei Model using Microsimulation


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  • Jürgen Wiemers

    (IAB Nürnberg)

  • Kerstin Bruckmeier

    (IAB Nürnberg)

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    Since Germany’s social assistance reform (“Hartz-IV-Reform”) in 2005 there has been a strong increase in the number of working poor and long-term unemployed. This development is often attributed to the remaining disincentives of the reformed social assistance to take up a low-paid full time job. Therefore, several proposals have been worked out to reduce these disincentives. In this paperwe analyse an in-work benefit programme considered by theGerman government, which follows the proposal of Bofinger et al. (2006). We employ a microsimulation model for estimating labour supply as well as distributional and fiscal effects of this reform proposal.We provide “morning after effects”, i.e. fiscal effects without considering behavioural adjustments, and long run effects, which take into account the labour supply response following the introduction of the reform.We predict the labour supply responses by estimating a discrete choice model for different household types and find a moderate increase in labour supply (103,000 full-time equivalents) as well as overall low negative participation effects. The distributional analysis reveals an overall increase in poverty rates caused by lower earnings disregards as well as substantial deadweight losses, since a large part of the in-work benefit accrues to households who do not belong to the working poor in the status quo.

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    Bibliographic Info

    Article provided by Justus-Liebig University Giessen, Department of Statistics and Economics in its journal Journal of Economics and Statistics.

    Volume (Year): 229 (2009)
    Issue (Month): 4 (August)
    Pages: 492-511

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    Handle: RePEc:jns:jbstat:v:229:y:2009:i:4:p:492-511

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    Related research

    Keywords: Labour supply; work incentives; microsimulation; in-work benefits;

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    1. Kenneth Train, 2003. "Discrete Choice Methods with Simulation," Online economics textbooks, SUNY-Oswego, Department of Economics, number emetr2, Spring.
    2. Hans-Werner Sinn & Christian Holzner & Wolfgang Meister & Wolfgang Ochel & Martin Werding, 2002. "Aktivierende Sozialhilfe - Ein Weg zu mehr Beschäftigung und Wachstum," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 55(09), pages 03-52, 05.
    3. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
    4. Blank, Rebecca M. & Card, David & Robins, Philip K., 1999. "Financial Incentives for Increasing Work and Income Among Low-Income Families," Department of Economics, Working Paper Series qt2f15x7sg, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    5. Koch, Susanne & Walwei, Ulrich, 2006. "Hinzuverdienstregelung im SGB II: Quo vadis?," Wirtschaftsdienst – Zeitschrift für Wirtschaftspolitik (1998 - 2007), ZBW – German National Library of Economics / Leibniz Information Centre for Economics, vol. 86(7), pages 423-427.
    6. Bonin, Holger & Schneider, Hilmar, 2004. "Analytical Prediction of Transitions Probabilities in the Conditional Logit Model," IZA Discussion Papers 1015, Institute for the Study of Labor (IZA).
    7. Bonin, Holger & Rinne, Ulf & Schneider, Hilmar, 2007. "Report No. 11: Untersuchung der beschäftigungs- und finanzpolitischen Auswirkungen des Bofinger/Walwei-Konzepts zur Neuordnung des Niedriglohnbereichs," IZA Research Reports 11, Institute for the Study of Labor (IZA).
    8. Arntz, Melanie & Clauss, Markus & Kraus, Margit & Schnabel, Reinhold & Spermann, Alexander & Wiemers, Jürgen, 2007. "Arbeitsangebotseffekte und Verteilungswirkungen der Hartz-IV-Reform," IAB-Forschungsbericht 200710, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
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