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Employment effects of welfare reforms: Evidence from a dynamic structural life-cycle model

  • Peter Haan

    (DIW - Deutsches Institut für Wirtschaftsforschung - German Institute for Economic Research, PSE - Paris-Jourdan Sciences Economiques - CNRS - EHESS - École des hautes études en sciences sociales - ENS Paris - École normale supérieure - Paris - École des Ponts ParisTech (ENPC), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics)

  • Victoria Prowse

    (Department of Economics - University of Oxford - University of Oxford)

  • Arne Uhlendorff

    (IZA - Institute for the Study of Labor - IZA, DIW - Deutsches Institut für Wirtschaftsforschung - DIW)

In this paper we develop a dynamic structural life-cycle model of labor supply behavior which fully accounts for the effects of income tax and transfers on labor supply incentives. Additionally, the model recognizes the demand side driven rationing risk that might prevent individuals from realizing their optimal labor supply state, resulting in involuntary unemployment. We use this framework to study the employment effects of transforming a traditional welfare state, as is currently in place in Germany, towards a more Anglo-American system in which a large proportion of transfers are paid to the working poor.

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Paper provided by HAL in its series PSE Working Papers with number halshs-00586748.

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Date of creation: Apr 2008
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Handle: RePEc:hal:psewpa:halshs-00586748
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  27. Arjan Heyma, 2004. "A structural dynamic analysis of retirement behaviour in the Netherlands," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(6), pages 739-759.
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