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Getting the Poor to Work: Three Welfare Increasing Reforms for a Busy Germany

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  • Robin Jessen

    (Freie Universitaet Berlin)

  • David Rostam-Afschar

    (Freie Universitaet Berlin)

  • Viktor Steiner

    (Freie Universitaet Berlin)

Abstract

We study three budget-neutral reforms of the German tax and transfer system designed to improve work incentives for people with low incomes: a feasible flat tax reform that provides a basic income which is equal to the current level of the means tested unemployment benefit, and two alternative reforms that involve employment subsidies to stimulate participation and full-time work, respectively. We estimate labor supply reactions and welfare effects using a microsimulation model based on household data from the Socio-Economic Panel (SOEP) and a structural labor supply model. We find that all three reforms increase labor supply in the first decile of the income distribution. However, the flat tax scenario reduces overall labor supply by 4.9%, the reform scenario designed to increase participation reduces labor supply by 1%, while the reform that provides improved incentives to work full-time has negligible effects on overall labor supply. With equal welfare weights, aggregate welfare gains are realizable under all three reforms. Creation Date: 2015-07-20

Suggested Citation

  • Robin Jessen & David Rostam-Afschar & Viktor Steiner, "undated". "Getting the Poor to Work: Three Welfare Increasing Reforms for a Busy Germany," BDPEMS Working Papers 2015010, Berlin School of Economics.
    • Handle: RePEc:bdp:wpaper:2015010
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    Cited by:

    1. Frank M. Fossen & Ray Rees & Davud Rostam-Afschar & Viktor Steiner, 2020. "The effects of income taxation on entrepreneurial investment: A puzzle?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(6), pages 1321-1363, December.
    2. Fischer, Benjamin & Jessen, Robin & Steiner, Viktor, 2019. "Work incentives and the cost of redistribution via tax-transfer reforms under constrained labor supply," Discussion Papers 2019/10, Free University Berlin, School of Business & Economics.
    3. Rolf Aaberge & Ugo Colombino, 2018. "Structural Labour Supply Models and Microsimulation," International Journal of Microsimulation, International Microsimulation Association, vol. 11(1), pages 162-197.
    4. Robin Jessen, 2019. "Why has Income Inequality in Germany Increased From 2002 to 2011? A Behavioral Microsimulation Decomposition," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 65(3), pages 540-560, September.
    5. Islam, Nizamul & Colombino, Ugo, 2018. "The case for NIT+FT in Europe. An empirical optimal taxation exercise," Economic Modelling, Elsevier, vol. 75(C), pages 38-69.
    6. Fossen, Frank M. & Rees, Ray & Rostam-Afschar, Davud & Steiner, Viktor, 2017. "How do entrepreneurial portfolios respond to income taxation?," Hohenheim Discussion Papers in Business, Economics and Social Sciences 12-2017, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    7. Robin Jessen & Davud Rostam-Afschar & Viktor Steiner, 2017. "Getting the Poor to Work: Three Welfare-Increasing Reforms for a Busy Germany," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 73(1), pages 1-41, March.
    8. Robin Jessen & Maria Metzing & Davud Rostam-Afschar, 2017. "Optimal Taxation under Different Concepts of Justness," SOEPpapers on Multidisciplinary Panel Data Research 953, DIW Berlin, The German Socio-Economic Panel (SOEP).
    9. Robin Jessen & Davud Rostam-Afschar & Sebastian Schmitz, 2018. "How important is precautionary labour supply?," Oxford Economic Papers, Oxford University Press, vol. 70(3), pages 868-891.
    10. Maximilian Joseph Blömer & Andreas Peichl, 2021. "Microsimulation of Different Variants of an Unconditional Basic Income in Germany," ifo Forschungsberichte, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 121.
    11. Yingying Lu & Yixiao Zhou, 2021. "A review on the economics of artificial intelligence," Journal of Economic Surveys, Wiley Blackwell, vol. 35(4), pages 1045-1072, September.
    12. Schröder, Carsten & König, Johannes & Fedorets, Alexandra & Goebel, Jan & Grabka, Markus M. & Lüthen, Holger & Metzing, Maria & Schikora, Felicitas & Liebig, Stefan, 2020. "The economic research potentials of the German Socio-Economic Panel study," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 21(3), pages 335-371.
    13. Fischer, Benjamin & Jessen, Robin & Steiner, Viktor, 2019. "Work incentives and the efficiency of tax-transfer reforms under constrained labor supply," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203607, Verein für Socialpolitik / German Economic Association.
    14. Spermann Alexander, 2017. "Basic Income in Germany: Proposals for Randomised Controlled Trials using Nudges," Basic Income Studies, De Gruyter, vol. 12(2), pages 1-9, December.
    15. Palermo Kuss, Ana Helena, 2019. "Testing preferences for basic income," The Constitutional Economics Network Working Papers 01-2019, University of Freiburg, Department of Economic Policy and Constitutional Economic Theory.
    16. Enrico Cristofoletti, 2021. "A Stata package for the estimation of the dose-response function when the treatment is multidimensional," DEM Working Papers 2021/07, Department of Economics and Management.
    17. Robin Jessen & Davud Rostam-Afschar & Sebastian Schmitz, 2018. "How important is precautionary labour supply?," Oxford Economic Papers, Oxford University Press, vol. 70(3), pages 868-891.
    18. Frank Fossen & Ray Rees & Davud Rostam-Afschar & Viktor Steiner, 2017. "How Do Entrepreneurial Portfolios Respond to Taxation?," CESifo Working Paper Series 6558, CESifo.
    19. Raddatz, Guido, 2019. "Das bedingungslose Grundeinkommen – ein Luftschloss," Zeitthemen 02, Stiftung Marktwirtschaft / The Market Economy Foundation, Berlin.
    20. Palermo Kuss Ana Helena & Neumärker K. J. Bernhard, 2018. "Modelling the Time Allocation Effects of Basic Income," Basic Income Studies, De Gruyter, vol. 13(2), pages 1-15, December.
    21. Piotr Misztal, 2018. "Universal basic income. Theory and practice," Managerial Economics, AGH University of Science and Technology, Faculty of Management, vol. 19(1), pages 103-116.

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    More about this item

    Keywords

    Flat Tax Basic Income Work Incentives Poverty Microsimulation;

    JEL classification:

    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

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