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A structural approach to estimating the effect of taxation on the labour market dynamics of older workers

  • Peter Haan
  • Victoria Prowse

We estimate a dynamic structural life-cycle model of employment, non-employment and retirement that includes endogenous accumulation of human capital and intertemporal non-separabilities in preferences. In addition, the model accounts for the effects of income tax, social security contributions and the transfer system on work incentives. The structural parameter estimates are used to evaluate the employment effects of a tax reform focused on low-income individuals. This tax reform is found to cause a significant increase in employment and we find evidence for anticipation effects if the reform is targeted only at older workers. Copyright (C) 2010 The Author(s). The Econometrics Journal (C) 2010 Royal Economic Society

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1368-423X.2009.00308.x
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Article provided by Royal Economic Society in its journal Econometrics Journal.

Volume (Year): 13 (2010)
Issue (Month): 3 (October)
Pages: S99-S125

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Handle: RePEc:ect:emjrnl:v:13:y:2010:i:3:p:s99-s125
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  1. Wolpin, Kenneth I, 1992. "The Determinants of Black-White Differences in Early Employment Careers: Search, Layoffs, Quits, and Endogenous Wage Growth," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 535-60, June.
  2. Frijters, Paul & van der Klaauw, Bas, 2004. "Job Search with Nonparticipation," IZA Discussion Papers 1407, Institute for the Study of Labor (IZA).
  3. Hamish Low & Costas Meghir & Luigi Pistaferri, 2008. "Wage risk and employment risk over the life cycle," IFS Working Papers W08/06, Institute for Fiscal Studies.
  4. Adda, Jérôme & Costa Dias, Mònica & Meghir, Costas & Sianesi, Barbara, 2007. "Labour market programmes and labour market outcomes: a study of the Swedish active labour market interventions," Working Paper Series 2007:27, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  5. Blundell, Richard, 2000. "Work Incentives and 'In-Work' Benefit Reforms: A Review," Oxford Review of Economic Policy, Oxford University Press, vol. 16(1), pages 27-44, Spring.
  6. Rebecca M. Blank, 2002. "Evaluating Welfare Reform in the United States," Journal of Economic Literature, American Economic Association, vol. 40(4), pages 1105-1166, December.
  7. repec:att:wimass:9430 is not listed on IDEAS
  8. Jeffrey M. Wooldridge, 2005. "Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(1), pages 39-54.
  9. Peter Haan & Victoria Prowse & Arne Uhlendorff, 2008. "Employment effects of welfare reforms: Evidence from a dynamic structural life-cycle model," PSE Working Papers halshs-00586748, HAL.
  10. John Rust & Christopher Phelan, 1997. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Econometrica, Econometric Society, vol. 65(4), pages 781-832, July.
  11. Haan, Peter & Prowse, Victoria L. & Uhlendorff, Arne, 2008. "Employment Effects of Welfare Reforms: Evidence from a Dynamic Structural Life-Cycle Model," IZA Discussion Papers 3480, Institute for the Study of Labor (IZA).
  12. Anders Karlstrom & Marten Palme & Ingemar Svensson, 2004. "A dynamic programming approach to model the retirement behaviour of blue-collar workers in Sweden," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(6), pages 795-807.
  13. Zvi Eckstein & Kenneth I. Wolpin, 1989. "The Specification and Estimation of Dynamic Stochastic Discrete Choice Models: A Survey," Journal of Human Resources, University of Wisconsin Press, vol. 24(4), pages 562-598.
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