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The design of in-work benefits: how to boost employment and combat poverty in Belgium

Author

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  • Dieter Vandelannoote
  • Gerlinde Verbist

Abstract

In-work benefits have received increased attention over the past decades in OECD countries, as a core part of making-work-pay policies. They have two main objectives: on the one hand, increase employment by creating additional financial rewards for remaining in work or for taking up a low-paid job. On the other hand, reduce poverty by increasing incomes of disadvantaged groups of workers and their families. Both objectives of enhancing employment and reducing poverty have been extensively analysed for several countries. Most papers in this domain have investigated existing in-work benefits (for an overview see e.g. Kenworthy, 2015). We take a different approach as we evaluate the impact of different design components on work incentives and poverty indicators by building step-by-step a stylised working tax credit. By different design components we mean: is the working tax credit individual or household based? What is the impact of using an income threshold? What happens when a tapering-out or a tapering-in is implemented? The main question of this paper is thus whether and how the design of a working tax credit has an impact on work incentives and poverty figures. The focus of our analysis is Belgium, a country with a less dispersed income distribution as e.g. the United Kingdom or the USA (which are the countries who first implemented in-work benefits and for which the bulk of the evaluations have been done). We make use of BE-SILC 2012 data and built a discrete labour supply model to evaluate the impact of the design of an in work-benefit on work incentives. Simulations are done using the microsimulation model EUROMOD.

Suggested Citation

  • Dieter Vandelannoote & Gerlinde Verbist, 2016. "The design of in-work benefits: how to boost employment and combat poverty in Belgium," ImPRovE Working Papers 16/15, Herman Deleeck Centre for Social Policy, University of Antwerp.
  • Handle: RePEc:hdl:improv:1615
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    File URL: http://www.centrumvoorsociaalbeleid.be/ImPRovE/Working%20Papers/ImPRovE%20WP%201615_1.pdf
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    References listed on IDEAS

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    1. François Bourguignon & Amedeo Spadaro, 2006. "Microsimulation as a tool for evaluating redistribution policies," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 4(1), pages 77-106, April.
    2. 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.
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    9. Immervoll, Herwig & Pearson, Mark, 2009. "A Good Time for Making Work Pay? Taking Stock of In-Work Benefits and Related Measures across the OECD," IZA Policy Papers 3, Institute for the Study of Labor (IZA).
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    16. repec:hdl:wpaper:1504 is not listed on IDEAS
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    More about this item

    Keywords

    in-work benefits; microsimulation; EUROMOD; policy design; BE-SILC;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • D30 - Microeconomics - - Distribution - - - General

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