Advanced Search
MyIDEAS: Login to save this article or follow this journal

Employment, Hours of Work and the Optimal Taxation of Low-Income Families

Contents:

Author Info

  • Richard Blundell
  • Andrew Shephard

Abstract

The optimal design of low-income support is examined using a structural labour supply model. The approach incorporates unobserved heterogeneity, fixed costs of work, childcare costs and the detailed non-convexities of the tax and transfer system. The analysis considers purely Pareto improving reforms and also optimal design under social welfare functions with different degrees of inequality aversion. We explore the gains from tagging and also examine the case for the use of hours-contingent payments. Using the tax schedule for lone parents in the U.K. as our policy environment, the results point to a reformed non-linear tax schedule with tax credits only optimal for low earners. The results also suggest a welfare improving role for tagging according to child age and for hours-contingent payments, although the case for the latter is mitigated when hours cannot be monitored or recorded accurately by the tax authorities. Copyright 2012, Oxford University Press.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://hdl.handle.net/10.1093/restud/rdr034
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Oxford University Press in its journal The Review of Economic Studies.

Volume (Year): 79 (2012)
Issue (Month): 2 ()
Pages: 481-510

as in new window
Handle: RePEc:oup:restud:v:79:y:2012:i:2:p:481-510

Contact details of provider:

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Jon Gruber & Emmanuel Saez, 2000. "The Elasticity of Taxable Income: Evidence and Implications," NBER Working Papers 7512, National Bureau of Economic Research, Inc.
  2. Philippe Chone & Guy Laroque, 2001. "Optimal Incentives for Labor Force Participation," Working Papers, Centre de Recherche en Economie et Statistique 2001-26, Centre de Recherche en Economie et Statistique.
  3. Michael P. Keane & Robert Moffitt, 1995. "A structural model of multiple welfare program participation and labor supply," Working Papers, Federal Reserve Bank of Minneapolis 557, Federal Reserve Bank of Minneapolis.
  4. John Creedy & Guyonne Kalb, 2003. "Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation," Melbourne Institute Working Paper Series, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne wp2003n16, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  5. Rolf Aaberge & Ugo Colombino, 2008. "Designing Optimal Taxes with a Microeconometric Model of Household Labour Supply," CHILD Working Papers, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY wp06_08, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
  6. Emmanuel Saez, 2000. "Using Elasticities to Derive Optimal Income Tax Rates," NBER Working Papers 7628, National Bureau of Economic Research, Inc.
  7. Cogan, John F, 1981. "Fixed Costs and Labor Supply," Econometrica, Econometric Society, Econometric Society, vol. 49(4), pages 945-63, June.
  8. Guy Laroque, 2005. "Income Maintenance and Labor Force Participation," Econometrica, Econometric Society, Econometric Society, vol. 73(2), pages 341-376, 03.
  9. Nada Eissa & Jeffrey B. Liebman, 1995. "Labor Supply Response to the Earned Income Tax Credit," NBER Working Papers 5158, National Bureau of Economic Research, Inc.
  10. Dickens & David T. Ellwood, 2004. "Whither Poverty in Great Britain and the United States? The Determinants of Changing Poverty and Whether Work Will Work," NBER Chapters, National Bureau of Economic Research, Inc, in: Seeking a Premier Economy: The Economic Effects of British Economic Reforms, 1980-2000, pages 313-370 National Bureau of Economic Research, Inc.
  11. van Soest, Arthur & Das, Marcel & Gong, Xiaodong, 2002. "A structural labour supply model with flexible preferences," Journal of Econometrics, Elsevier, Elsevier, vol. 107(1-2), pages 345-374, March.
  12. Phelps, Edmund S, 1994. "Low-Wage Employment Subsidies versus the Welfare State," American Economic Review, American Economic Association, American Economic Association, vol. 84(2), pages 54-58, May.
  13. Herwig Immervoll & Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Emmanuel Saez, 2005. "Welfare Reform in European Countries: A Microsimulation Analysis," OECD Social, Employment and Migration Working Papers, OECD Publishing 28, OECD Publishing.
  14. Austan Goolsbee, 1997. "What Happens When You Tax the Rich? Evidence from Executive Compensation," NBER Working Papers 6333, National Bureau of Economic Research, Inc.
  15. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695 Elsevier.
  16. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521766555.
  17. Paul Beaudry & Charles Blackorby & Dezs´┐Ż Szalay, 2009. "Taxes and Employment Subsidies in Optimal Redistribution Programs," American Economic Review, American Economic Association, American Economic Association, vol. 99(1), pages 216-42, March.
  18. Besley, Timothy & Coate, Stephen, 1992. "Workfare versus Welfare Incentive Arguments for Work Requirements in Poverty-Alleviation Programs," American Economic Review, American Economic Association, American Economic Association, vol. 82(1), pages 249-61, March.
  19. Beaudry, Paul & Blackorby, Charles & Szalay, Dezso, 2006. "Taxes and Employment Subsidies in Optimal Redistribution Programs (Revised Version)," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 779, University of Warwick, Department of Economics.
  20. Mike Brewer, 2001. "Comparing in-work benefits and the reward to work for families with children in the US and the UK," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 22(1), pages 41-77, January.
  21. Brewer, Mike & Duncan, Alan & Shephard, Andrew & Suarez, Maria Jose, 2006. "Did working families' tax credit work? The impact of in-work support on labour supply in Great Britain," Labour Economics, Elsevier, Elsevier, vol. 13(6), pages 699-720, December.
  22. Hilary Hoynes, 1993. "Welfare Transfers in Two-Parent Families: Labor Supply and Welfare Participation Under AFDC-UP," NBER Working Papers 4407, National Bureau of Economic Research, Inc.
  23. Richard Blundell & Monica Costa Dias, 2000. "Evaluation methods for non-experimental data," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 21(4), pages 427-468, January.
  24. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  25. Kelly Bishop & Bradley Heim & Kata Mihaly, 2009. "Single Women's Labor Supply Elasticities: Trends and Policy Implications," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, ILR Review, Cornell University, ILR School, vol. 63(1), pages 146, October.
  26. Moffitt, Robert, 1983. "An Economic Model of Welfare Stigma," American Economic Review, American Economic Association, American Economic Association, vol. 73(5), pages 1023-35, December.
  27. Diamond, P., 1980. "Income taxation with fixed hours of work," Journal of Public Economics, Elsevier, Elsevier, vol. 13(1), pages 101-110, February.
Full references (including those not matched with items on IDEAS)

Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Employment, Hours of Work and the Optimal Taxation of Low Income Families
    by maximorossi in NEP-LTV blog on 2011-06-23 17:40:47
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:oup:restud:v:79:y:2012:i:2:p:481-510. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.