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The Effect of Financial Incentives on Labour Supply: Evidence for Lone Parents from Microsimulation and Quasi-Experimental Evaluation

  • Lixin Cai
  • Guyonne Kalb
  • Yi-Ping Tseng
  • Ha Vu

The aim of this paper is to analyse the work incentive effects of a change in the Australian tax and transfer system on lone parents in July 2000. To evaluate the effect of the total change only, microsimulation can be used; but for a subgroup of lone parents, a few components of this policy change can be analysed through two alternative approaches - microsimulation and quasi-experimental evaluation. Both approaches examine the effects on the probability of employment and on average working hours. The results from microsimulation show that the combined changes introduced in July 2000 - involving reduced withdrawl rates, changed family payments and lower income tax rates - have increased labour supply for lone parents to a moderate extent. The estimated effect on average working hours when using microsimulation is very close to the effect estimated in a quasi-experimental approach using matching techniques to control for alternative influences. Copyright (c) 2008 The Authors Journal compilation (c) Institute for Fiscal Studies, 2008.

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Article provided by Institute for Fiscal Studies in its journal Fiscal Studies.

Volume (Year): 29 (2008)
Issue (Month): 2 (06)
Pages: 285-325

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Handle: RePEc:ifs:fistud:v:29:y:2008:i:2:p:285-325
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  8. Richard Blundell & Monica Costa Dias & Costas Meghir & John Van Reenen, 2001. "Evaluating the employment impact of a mandatory job search assistance program," IFS Working Papers W01/20, Institute for Fiscal Studies.
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  21. Heckman, James J & Ichimura, Hidehiko & Todd, Petra, 1998. "Matching as an Econometric Evaluation Estimator," Review of Economic Studies, Wiley Blackwell, vol. 65(2), pages 261-94, April.
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