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

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  • Lixin Cai

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

  • Guyonne Kalb

    () (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

  • Yi-Ping Tseng

    () (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

  • Hong Ha Vu

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

Abstract

The aim of this paper is to analyse work incentive effects from a recent change in the Australian tax and transfer system on sole parents. Two approaches are used in the analysis: microsimulation and quasi-experimental evaluation. Both approaches examine the effects on the probability of employment and average working hours. The results from both approaches show that the combined changes introduced in July 2000 involving reduced withdrawal rates, changed family payments and lower income tax rates¯have increased labour supply for sole parents to a small extent. The results from microsimulation are slightly smaller than those estimated from a quasi-experimental approach using matching techniques to control for alternative influences. In addition, using microsimulation, the separate effects of the components can be estimated. It was found that reduced benefit withdrawal rates, a reduction in the withdrawal rates and abolition of the sudden death for family payments, and lower income tax rates all increased labour supply. However, the replacement of tax rebates with additional non-income-tested family payments is estimated to have a negative effect on labour supply.

Suggested Citation

  • Lixin Cai & Guyonne Kalb & Yi-Ping Tseng & Hong Ha Vu, 2005. "The Effect of Financial Incentives on Labour Supply: Evidence for Sole Parents from Microsimulation and Quasi-Experimental Evaluation," Melbourne Institute Working Paper Series wp2005n10, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  • Handle: RePEc:iae:iaewps:wp2005n10
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    References listed on IDEAS

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    Cited by:

    1. Haigner Stefan & Höchtl Wolfgang & Schneider Friedrich Georg & Wakolbinger Florian & Jenewein Stefan, 2012. "Keep On Working: Unconditional Basic Income in the Lab," Basic Income Studies, De Gruyter, vol. 7(1), pages 1-14, December.
    2. Yin King Fok & Sung-Hee Jeon & Roger Wilkins, 2009. "Does Part-Time Employment Help or Hinder Lone Mothers Movements into Full-Time Employment?," Melbourne Institute Working Paper Series wp2009n25, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    3. BARGAIN Olivier & DOORLEY Karina, 2016. "The Effect of Social Benefits on Youth Employment: Combining RD and a Behavioral Model," LISER Working Paper Series 2016-12, LISER.
    4. Thoresen, Thor O. & Vattø, Trine E., 2015. "Validation of the discrete choice labor supply model by methods of the new tax responsiveness literature," Labour Economics, Elsevier, vol. 37(C), pages 38-53.
    5. John Creedy & Nicolas Hérault, 2009. "Optimal Marginal Income Tax Reforms: A Microsimulation Analysis," Melbourne Institute Working Paper Series wp2009n23, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    6. Eugenio Zucchelli & Andrew M Jones & Nigel Rice, 2012. "The evaluation of health policies through dynamic microsimulation methods," International Journal of Microsimulation, International Microsimulation Association, vol. 5(1), pages 2-20.
    7. Bargain, Olivier & Doorley, Karina, 2013. "Putting Structure on the RD Design: Social Transfers and Youth Inactivity in France," IZA Discussion Papers 7508, Institute for the Study of Labor (IZA).
    8. Zucchelli, E & Jones, A.M & Rice, N, 2010. "The evaluation of health policies through microsimulation methods," Health, Econometrics and Data Group (HEDG) Working Papers 10/03, HEDG, c/o Department of Economics, University of York.
    9. Alan S Duncan & Mark N Harris & Anthony Harris & Eugenio Zucchelli, 2013. "The Influence of Psychological Well-being, Ill Health and Health Shocks on Single Parents' Labour Supply," Bankwest Curtin Economics Centre Working Paper series WP1307, Bankwest Curtin Economics Centre (BCEC), Curtin Business School.
    10. Hielke BUDDELMEYER & Guyonne KALB, "undated". "Labour Supply and Welfare Participation in the Australian Population: Using Observed Job Search to Account for Involuntary Unemployment," EcoMod2008 23800020, EcoMod.
    11. Guyonne Kalb & Thor Thoresen, 2010. "A comparison of family policy designs of Australia and Norway using microsimulation models," Review of Economics of the Household, Springer, vol. 8(2), pages 255-287, June.
    12. Penny Mok & Joseph Mercante, 2014. "Working for Families changes: The effect on labour supply in New Zealand," Treasury Working Paper Series 14/18, New Zealand Treasury.
    13. Eric Bettinger & Torbjørn Haegeland & Mari Rege, 2014. "Home with Mom: The Effects of Stay-at-Home Parents on Children's Long-Run Educational Outcomes," Journal of Labor Economics, University of Chicago Press, vol. 32(3), pages 443-467.
    14. Ha Vu, 2014. "The Relationship between Labour Market Conditions and Welfare Receipt in Australia: A Stock-Flow Analysis," The Economic Record, The Economic Society of Australia, vol. 90(291), pages 507-525, December.

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