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Beans for breakfast? How exportable is the British workfare model?

  • Bargain, Olivier
  • Orsini, Kristian

Social assistance and inactivity traps have long been considered amongst the main causes of the poor employment performance of EU countries. The success of New Labour has triggered a growing interests in instruments capable of combining the promotion of responsibility and self-sufficiency with solidarity with less skilled workers. Making-work-pay (MWP) policies, consisting of transfers to households with low earning capacity, have quickly emerged as the most politically acceptable instruments in tax-benefit reforms of many Anglo Saxon countries. This chapter explores the impact of introducing the British Working Families' Tax Credit in three EU countries with rather different labor market and welfare institutions: Finland, France and Germany. Simulating the reform reveals that, while first round effects on income distribution is considerable, the interaction of the new instrument with the structural characteristics of the economy and the population may lead to counterproductive second round effects (i.e. changes in economic behavior). The implementation of the reform, in this case, could only be justified if the social inclusion (i.e. transition into activity) of some specific household types (singles and single mothers) is valued more than a rise in the employment per se.

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Paper provided by EUROMOD at the Institute for Social and Economic Research in its series EUROMOD Working Papers with number EM2/06.

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Date of creation: 01 Apr 2006
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Publication status: published
Handle: RePEc:ese:emodwp:em2-06
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  1. Peter Haan & Viktor Steiner, 2005. "Distributional Effects of the German Tax Reform 2000 - A Behavioral Microsimulation Analysis," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 125(1), pages 39-49.
  2. Bargain, Olivier & Orsini, Kristian, 2004. "In-work policies in Europe: killing two birds with one stone?," EUROMOD Working Papers EM4/04, EUROMOD at the Institute for Social and Economic Research.
  3. van Soest, A.H.O. & Das, J.W.M., 2000. "Family Labor Supply and Proposed Tax Reforms in the Netherlands," Discussion Paper 2000-20, Tilburg University, Center for Economic Research.
  4. Pierre-André Chiappori & François Bourguignon, 1998. "Fiscalité et redistribution," Revue Française d'Économie, Programme National Persée, vol. 13(1), pages 3-64.
  5. Eissa, Nada & Hoynes, Hilary Williamson, 2004. "Taxes and the labor market participation of married couples: the earned income tax credit," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1931-1958, August.
  6. John Ermisch & Robert Wright, 1994. "Interpretation of negative sample selection effects in wage offer equations," Applied Economics Letters, Taylor & Francis Journals, vol. 1(11), pages 187-189.
  7. Brewer, Mike & Duncan, Alan & Shephard, Andrew & Suarez, Maria Jose, 2006. "Did working families' tax credit work? The impact of in-work support on labour supply in Great Britain," Labour Economics, Elsevier, vol. 13(6), pages 699-720, December.
  8. James Banks & Richard Disney & Alan Duncan & John Van Reenen, 2005. "The Internationalisation of Public Welfare Policy," Economic Journal, Royal Economic Society, vol. 115(502), pages C62-C81, 03.
  9. Mantovani, Daniela & Sutherland, Holly, 2003. "Social indicators and other income statistics using the EUROMOD baseline: a comparison with Eurostat and National Statistics," EUROMOD Working Papers EM1/03, EUROMOD at the Institute for Social and Economic Research.
  10. Richard Blundell & Alan Duncan & Julian McCrae & Costas Meghir, 2000. "The labour market impact of the working families’ tax credit," Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 75-103, March.
  11. Martin, John P. & Grubb, David, 2001. "What works and for whom: a review of OECD countries' experiences with active labour market policies," Working Paper Series 2001:14, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  12. Olivier Bargain, 2004. "Aides au retour à l'emploi et activité des femmes en couple," Revue de l'OFCE, Presses de Sciences-Po, vol. 88(1), pages 59-87.
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