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Tax and Benefit Reforms in a Model of Labour Market Transitions

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  • Michal Myck
  • Howard Reed

Abstract

We present a method for taking advantage of labour market transitions to identify effects of financial incentives on employment decisions. The framework we use is very flexible and by imposing few theoretical assumptions allows extending the modelled sample relative to struc-tural models. We take advantage of this flexibility to include disabled people in the model and to analyse behaviour of disabled and non-disabled people jointly. A great deal of attention is paid to appropriate modelling of financial incentives on the labour market. This in the case of disabled people turns out to be an extremely complex process but one which in the end turns out well worth the effort. The model is used to compare reactions on the labour market to marginal changes in financial incentives and also to model one of the most important reforms of the UK Labour government, the introduction of the Working Families' Tax Credit. The methodology relies on matching transitions and incomes data between cross-sectional and panel surveys, and could be used in other countries where detailed reliable income data are not collected in a panel format.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.44731.de/dp625.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 625.

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Length: 45 p.
Date of creation: 2006
Date of revision:
Handle: RePEc:diw:diwwpp:dp625

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References

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  1. 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, vol. 13(6), pages 699-720, December.
  2. Michal Myck & Howard Reed, 2006. "Tax and Benefit Reforms in a Model of Labour Market Transitions," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 75(3), pages 208-239.
  3. Jonathan Gruber, 1996. "Disability Insurance Benefits and Labor Supply," NBER Working Papers 5866, National Bureau of Economic Research, Inc.
  4. Bargain, O. & Beblo, M. & Beninger, D. & Blundell, R. & Carrasco, R. & Chiuri, M-C. & Laisney, F. & Lechene, V. & Longobardi, E. & Moreau, N. & Myck, M. & Ruiz-castillo, J. & Vermeulen, F.M.P., 2006. "The working families' tax credit and some European tax reforms in a collective setting," Open Access publications from Tilburg University urn:nbn:nl:ui:12-194161, Tilburg University.
  5. 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.
  6. Parsons, Donald O, 1982. "The Male Labour Force Participation Decision: Health, Reported Health, and Economic Incentives," Economica, London School of Economics and Political Science, vol. 49(193), pages 81-91, February.
  7. John Bound, 1989. "The Health and Earnings of Rejected Disability Insurance Applicants," NBER Working Papers 2816, National Bureau of Economic Research, Inc.
  8. Jon Harkness, 1993. "Labour Force Participation by Disabled Males in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 26(4), pages 878-89, November.
  9. John Bound, 1991. "Self-Reported Versus Objective Measures of Health in Retirement Models," Journal of Human Resources, University of Wisconsin Press, vol. 26(1), pages 106-138.
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Cited by:
  1. Myck, Michal & Kurowska, Anna & Kundera, Michał, 2013. "Financial Support for Families with Children and its Trade-offs: Balancing Redistribution and Parental Work Incentives," IZA Discussion Papers 7506, Institute for the Study of Labor (IZA).
  2. Kurowska, Anna & Myck, Michal & Wrohlich, Katharina, 2012. "Family and Labor Market Choices: Requirements to Guide Effective Evidence-Based Policy," IZA Discussion Papers 6846, Institute for the Study of Labor (IZA).
  3. Leszek Morawski & Michal Myck, 2008. "'Klin'-ing up: effects of Polish tax reforms on those in and on those out," IFS Working Papers W08/12, Institute for Fiscal Studies.
  4. Michal Myck & Howard Reed, 2006. "Tax and Benefit Reforms in a Model of Labour Market Transitions," Discussion Papers of DIW Berlin 625, DIW Berlin, German Institute for Economic Research.

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