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In Work Policies In Europe: Killing Two Birds With One Stone?

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Author Info
Bargain O
Orsini K

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Abstract

Earning an income is probably the best way to avoid poverty and social exclusion, hence the recent trend of promoting employment through in-work transfers in OECD countries. Yet, the relative consensus on the need for ëmaking work payí policies is muddied by a number of concerns relative to the design of the reforms and the treatment of the family dimension. Relying on EUROMOD, a EU-15 integrated tax-benefit microsimulation software, we simulate two types of in-work benefits. The first one is means-tested on family income, in the fashion of the British Working Family Tax Credit, while the second is a purely individualized low wage subsidy. Both reforms are built on the same cost basis (after behavioral responses) and simulated in three European countries which experience severe poverty traps, namely Finland, France and Germany. The potential labor supply responses to the reforms and the subsequent redistributive impacts are assessed for each country using a structural discrete-choice model. We compare how both reforms achieve poverty reduction and social inclusion (measured as the number of transitions into activity). All three countries present different initial conditions, including institutional environment, existing tax-benefit systems and distribution of incomes and wages. These sources of heterogeneity are exploited together with different labor supply sensitivities to explain the cross-country differences in the impact of the reforms.

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Paper provided by EUROMOD at the Institute for Social and Economic Research in its series EUROMOD Working Papers with number EM4/04.

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Date of creation: 01 Oct 2004
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Handle: RePEc:ese:emodwp:em4/04

Note: microsimulation, tax-benefit systems, in-work benefits, household labor supply, multinomial logit.
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Keywords: microsimulation; tax-benefit systems; in-work benefits; household labor supply; multinomial logit.;

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Find related papers by JEL classification:
C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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  1. Olivier Bargain & Herwig Immervoll & Heikki Viitamäki, 2007. "How Tight are Safety-Nets in Nordic Countries? Evidence from Finnish Register Data," Working Papers 200712, School Of Economics, University College Dublin. [Downloadable!]
    Other versions:
  2. Lietz C & Mantovani D, 2006. "Lessons From Building And Using Euromod," EUROMOD Working Papers EM5/06, EUROMOD at the Institute for Social and Economic Research. [Downloadable!]
  3. Viktor Steiner & Katharina Wrohlich, 2005. "Work Incentives and Labor Supply Effects of the ‘Mini-Jobs Reform’ in Germany," Empirica, Springer, vol. 32(1), pages 91-116, 03. [Downloadable!] (restricted)
  4. Olivier Bargain & Marco Caliendo & Peter Haan & Kristian Orsini, 2006. "'Making Work Pay' in a Rationed Labour Market," IZA Discussion Papers 2033, Institute for the Study of Labor (IZA). [Downloadable!]
  5. Olivier Bargain & Kristian Orsini, 2006. "Beans for Breakfast? How Exportable Is the British Workfare Model?," IZA Discussion Papers 2025, Institute for the Study of Labor (IZA). [Downloadable!]
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  6. Anna Laura Mancini, 2007. "Labor supply responses of Italian women to minimum income policies," CHILD Working Papers wp14_07, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY. [Downloadable!]
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  7. Anthony Barnes Atkinson, 2005. "EUROMOD and the Development of EU Social Policy," Discussion Papers of DIW Berlin 467, DIW Berlin, German Institute for Economic Research. [Downloadable!]
  8. Atkinson A, 2005. "Euromod And The Development Of Eu Social Policy," EUROMOD Working Papers EM1/05, EUROMOD at the Institute for Social and Economic Research. [Downloadable!]
  9. Peter Haan & Viktor Steiner, 2006. "Making Work Pay for the Elderly Unemployed: Evaluating Alternative Policy Reforms for Germany," IZA Discussion Papers 2424, Institute for the Study of Labor (IZA). [Downloadable!]
  10. Bargain, Olivier, 2004. "Normative Evaluation of Tax Policies: From Households to Individuals," IZA Discussion Papers 1441, Institute for the Study of Labor (IZA). [Downloadable!]
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  11. Peter Haan & Viktor Steiner, 2006. "Making Work Pay for the Elderly Unemployed: Evaluating Alternative Policy Reforms for Germany," Discussion Papers of DIW Berlin 641, DIW Berlin, German Institute for Economic Research. [Downloadable!]
  12. Sutherland H, 2005. "Micro Level Analysis Of The European Social Agenda: Combating Poverty And Social Exclusion Through Changes In Social And Fiscal Policy Final Report," EUROMOD Working Papers EM8/05, EUROMOD at the Institute for Social and Economic Research. [Downloadable!]
  13. Peter Haan & Michal Myck, 2007. "Safety Net Still in Transition: Labour Market Incentive Effects of Extending Social Support in Poland," IZA Discussion Papers 3157, Institute for the Study of Labor (IZA). [Downloadable!]
  14. Marco Caliendo & Viktor Steiner, 2005. "Aktive Arbeitsmarktpolitik in Deutschland: Bestandsaufnahme und Bewertung der mikroökonomischen Evaluationsergebnisse," Discussion Papers of DIW Berlin 515, DIW Berlin, German Institute for Economic Research. [Downloadable!]
  15. Pertti Honkanen & Markus Jäntti & Jukka Pirttilä, 2007. "Alleviating unemployment traps in Finland: Can the efficiency-equity trade-off be avoided?," Discussion Papers 24, Aboa Centre for Economics. [Downloadable!]
  16. Olivier Bargain, 2004. "Evaluation normative des politiques fiscales : du ménage à l'individu," DELTA Working Papers 2004-29, DELTA (Ecole normale supérieure). [Downloadable!]
  17. Olivier Bargain & Marco Caliendo & Peter Haan & Kristian Orsini, 2005. "'Making Work Pay' in a Rationed Labour Market: The Mini-Job Reform in Germany," Discussion Papers of DIW Berlin 536, DIW Berlin, German Institute for Economic Research. [Downloadable!]
  18. Figari F, 2009. "Can In-Work Benefits Improve Social Inclusion in the Southern European Countries?," EUROMOD Working Papers EM4/09, EUROMOD at the Institute for Social and Economic Research. [Downloadable!]
  19. Olivier Bargain, 2007. "On Modeling Household Labor Supply With Taxation," Working Papers 200711, School Of Economics, University College Dublin. [Downloadable!]
    Other versions:
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