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Reforming Social Welfare as We Know It? A Microsimulation Study for Germany

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  • Jacobebbinghaus, Peter
  • Steiner, Viktor
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    Abstract

    Social assistance and unemployment assistance, which provide means tested income support (social welfare) without pre-specified time limits, are viewed as one important reason for the persistently high level of unemployment in Germany by many economists. In order to increase work incentives and, at the same time, reduce social expenditures there have been various proposals to reform social welfare in the recent German policy debate. We analyse a specific reform proposal with the following components: (i) an integration of unemployment assistance and social assistance; (ii) a substantial reduction of the social assistance level for ?employable? persons who choose not to work; (iii) improved incentives to take up work by a combination of a reduction of the social assistance withdrawal rate and an earnings-related tax credit. The expected employment and fiscal effects of this welfare reform proposal are simulated on the basis of an econometrically estimated partialequilibrium labour supply/demand model embedded in a detailed tax-benefit microsimulation model. We find that the reductions in net social expenditures may be substantial, although the expected labour supply and employment effects of this reform are much smaller than is typically assumed by contributors to recent discussions on the potential labour market effects of welfare reforms in Germany. Furthermore, these employment gains come at the cost of a substantial expansion of public-works jobs. --

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    Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 03-33.

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    Date of creation: 2003
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    Handle: RePEc:zbw:zewdip:1343

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    1. 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.
    2. 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.
    3. Emmanuel Saez, 2000. "Optimal Income Transfer Programs: Intensive Versus Extensive Labor Supply Responses," NBER Working Papers 7708, National Bureau of Economic Research, Inc.
    4. Stefan Homburg, 2003. "Arbeitslosigkeit und soziale Sicherung," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, DIW Berlin, German Institute for Economic Research, vol. 72(1), pages 68-82.
    5. Wolfgang Ochel, 2002. "Welfare to Work in the US: A Model for Germany?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 59(1), pages 91-, February.
    6. Hermann Buslei & Viktor Steiner, 2003. "Anreizwirkungen von Lohnsubventionen: welche Bedeutung haben sie für die aktuelle Reformdiskussion?," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, DIW Berlin, German Institute for Economic Research, vol. 72(1), pages 94-108.
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    Cited by:
    1. Stefan Boeters & Michael Feil & Nicole Gürtzgen, 2005. "Discrete Working Time Choice in an Applied General Equilibrium Model," Computational Economics, Society for Computational Economics, Society for Computational Economics, vol. 26(3), pages 1-29, November.
    2. Berthold, Norbert & von Berchem, Sascha, 2005. "Hartz IV: eine vertane Chance nutzen," Wirtschaftswissenschaftliche Beiträge 79, Julius-Maximilians-Universität Würzburg, Lehrstuhl für Volkswirtschaftslehre, insbes. Wirtschaftsordnung und Sozialpolitik.
    3. Arntz, Melanie & Boeters, Stefan & Gürtzgen, Nicole, 2005. "Alternative Approaches to Discrete Working Time Choice in an AGE Framework," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 05-62, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    4. Peichl, Andreas, 2005. "Die Evaluation von Steuerreformen durch Simulationsmodelle," FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 05-1, University of Cologne, FiFo Institute for Public Economics.
    5. Melanie Arntz & Stefan Boeters & Nicole Gürtzgen & Stefanie Schubert, 2006. "Analysing Welfare Reform in a Microsimulation-AGE Model," Computing in Economics and Finance 2006, Society for Computational Economics 109, Society for Computational Economics.
    6. Buhr, Petra, 2004. "Armut und Armutsentwicklung in Deutschland, Status Quo und mögliche Folgen der Reformpolitik," Working papers of the ZeS 04/2004, University of Bremen, Centre for Social Policy Research (ZeS).
    7. Schnabel, Reinhold & Gürtzgen, Nicole & Boeters, Stefan, 2003. "Reforming Social Welfare in Germany: An Applied General Equilibrium Analysis," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 03-70, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    8. El Lahga, AbdelRahmen & Moreau, Nicolas, 2007. "The Effects of Marriage on Couples’ Allocation of Time Between Market and Non-Market Hours," IZA Discussion Papers 2619, Institute for the Study of Labor (IZA).
    9. Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung (ed.), 2006. "Arbeitslosengeld II reformieren: Ein zielgerichtetes Kombilohnmodell. Expertise im Auftrag des Bundesministers für Wirtschaft und Technologie," Occasional Reports / Expertisen, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, number 75364.
    10. Viktor Steiner & Katharina Wrohlich, 2005. "Work Incentives and Labor Supply Effects of the ‘Mini-Jobs Reform’ in Germany," Empirica, Springer, Springer, vol. 32(1), pages 91-116, 03.

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