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In-work benefits for married couples: an ex-ante evaluation of EITC and WTC policies in Italy

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  • Giuseppe De Luca
  • Claudio Rossetti
  • Daniela Vuri

Abstract

This paper investigates labor supply and redistributive effects of in-work benefits for Italian married couples using a tax-benefit microsimulation model and a multi-sectoral discrete choice model of labor supply. We consider in-work benefits based on the Earned Income Tax Credit (EITC) and the Working Tax Credit (WTC) existing in the US and the UK, respectively. The standard design of these income support mechanisms is however augmented with a premium for two-earner households to avoid potential disincentive effects on secondary earners. Revenue neutral policy simulations show that our reforms may greatly improve the current Italian tax-benefit system in terms of both incentive and redistributive effects. Furthermore, neglecting sector-specific attributes of the various job opportunities may lead to an oversimplified representation of the choice set that does not allow to capture some labor market transitions and thus results in attenuated labor supply responses.

Suggested Citation

  • Giuseppe De Luca & Claudio Rossetti & Daniela Vuri, 2013. "In-work benefits for married couples: an ex-ante evaluation of EITC and WTC policies in Italy," Working Papers 12, Department of the Treasury, Ministry of the Economy and of Finance.
  • Handle: RePEc:itt:wpaper:wp2013-12
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Kurowska, Anna & Myck, Michal & Wrohlich, Katharina, 2015. "Making Work Pay: Increasing Labour Supply of Secondary Earners in Low Income Families with Children," IZA Discussion Papers 9531, Institute for the Study of Labor (IZA).
    2. Nicholas-James Clavet & Luca Tiberti & Marko Vladisavljevic & Jelena Zarkovic Rakic & Aleksandra Anic & Gorana Krstic & Sasa Randelovic, 2017. "Reduction of child poverty in Serbia: Improved cash-transfers or higher work incentives for parents?," Working Papers PMMA 2017-04, PEP-PMMA.
    3. Mojsoska-Blazevski, Nikica & Petreski, Marjan & Petreska, Despina, 2013. "Increasing labour market activity of poor and female: Let’s make work pay in Macedonia," MPRA Paper 57228, University Library of Munich, Germany.
    4. Ugo Colombino, 2015. "The Istat Microsimulation Models," Rivista di statistica ufficiale, ISTAT - Italian National Institute of Statistics - (Rome, ITALY), vol. 17(2), pages 5-15.
    5. Lane Kenworthy, 2015. "Do employment-conditional earnings subsidies work?," ImPRovE Working Papers 15/10, Herman Deleeck Centre for Social Policy, University of Antwerp.
    6. Blazevski, Nikica Mojsoska & Petreski, Marjan & Petreska, Despina, 2013. "Increasing labour market activity of the poor and females: let’s make work pay in Macedonia," EUROMOD Working Papers EM16/13, EUROMOD at the Institute for Social and Economic Research.

    More about this item

    Keywords

    In-work benefits; sectoral labor supply; poverty; microsimulation; married couples;

    JEL classification:

    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs

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