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Evaluation of Policy Options to Encourage Welfare to Work

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  • Hielke Buddelmeyer
  • John Freebairn
  • Guyonne Kalb

Abstract

This article compares five alternative policy options with the January 2006 tax and social security system. Each option is designed to cost a similar amount of approximately $5 billion per year to the government at the observed level of labour supply. The five options include reducing the lowest income tax rate, increasing the tax-free threshold, increasing the low income tax offset, decreasing all taper rates on own and partner's incomes for a number of allowances, and introducing an earned income tax credit. The criteria for comparison are the labour supply responses, the expected budgetary cost to the government after taking into account labour supply responses, the number of winners and losers from the policy change, the effects on the distribution of effective marginal tax rates, and the effects on the number of jobless households. From the results, it is clear that the option to reduce taper rates is dominated by the other options on all criteria. The other four options each have their advantages and disadvantages; no option scores best on all criteria. Copyright 2006 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research.

Suggested Citation

  • Hielke Buddelmeyer & John Freebairn & Guyonne Kalb, 2006. "Evaluation of Policy Options to Encourage Welfare to Work," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 39(3), pages 273-292, September.
  • Handle: RePEc:bla:ausecr:v:39:y:2006:i:3:p:273-292
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    References listed on IDEAS

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    1. Productivity Commission, 2005. "Economic Implications of an Ageing Australia," Labor and Demography 0506001, EconWPA.
    2. Guyonne Kalb & Rosanna Scutella, 2002. "Estimation of Wage Equations in Australia: Allowing for Censored Observations of Labour Supply," Melbourne Institute Working Paper Series wp2002n08, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    3. Guyonne Kalb, 2002. "Estimation of Labour Supply Models for Four Separate Groups in the Australian Population," Melbourne Institute Working Paper Series wp2002n24, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    4. John Creedy & Alan S. Duncan & Mark Harris & Rosanna Scutella, 2002. "Microsimulation Modelling of Taxation and the Labour Market," Books, Edward Elgar Publishing, number 2796.
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    Cited by:

    1. Meritxell Solé & Guadalupe Souto & Concepció Patxot, 2018. "Sustainability and adequacy of the Spanish pension system after the 2013 reform: a microsimulation analysis," UB Economics Working Papers 2018/372, Universitat de Barcelona, Facultat d'Economia i Empresa, UB Economics.
    2. van Sonsbeek, Jan-Maarten, 2010. "Micro simulations on the effects of ageing-related policy measures," Economic Modelling, Elsevier, vol. 27(5), pages 968-979, September.
    3. repec:exl:22evid:v:2015:y:2015:i:3:p:1-23 is not listed on IDEAS
    4. Robert G. Gregory, 2013. "The Henderson Question? The Melbourne Institute and 50 Years of Welfare Policy," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 46(2), pages 202-215, June.
    5. Rachel Ong & Gavin Wood & Melek Cigdem, 2013. "Work incentives and decisions to remain in paid work in Australia," Bankwest Curtin Economics Centre Working Paper series WP1312, Bankwest Curtin Economics Centre (BCEC), Curtin Business School.
    6. Rebecca Cassells & Ann Harding & Simon Kelly, 2006. "Problems and Prospects for Dynamic Microsimulation: A review and lessons for APPSIM," NATSEM Working Paper Series 63, University of Canberra, National Centre for Social and Economic Modelling.

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