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Employment Effects of Welfare Reforms: Evidence from a Dynamic Structural Life-Cycle Model

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  • Haan, Peter

    (DIW Berlin)

  • Prowse, Victoria L.

    (Purdue University)

  • Uhlendorff, Arne

    (CREST)

Abstract

In this paper we develop a dynamic structural life-cycle model of labor supply behavior which fully accounts for the effect 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.

Suggested Citation

  • Haan, Peter & Prowse, Victoria L. & Uhlendorff, Arne, 2008. "Employment Effects of Welfare Reforms: Evidence from a Dynamic Structural Life-Cycle Model," IZA Discussion Papers 3480, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp3480
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    Cited by:

    1. Peter Haan & Victoria Prowse, 2010. "A structural approach to estimating the effect of taxation on the labour market dynamics of older workers," Econometrics Journal, Royal Economic Society, vol. 13(3), pages 99-125, October.
    2. Xavier Jara Tamayo, Holguer & Bargain, Olivier & Akay, Alpaslan, 2015. "Back to Bentham: should we? Large-scale comparison of decision versus experienced utility for income-leisure preferences," ISER Working Paper Series 2015-02, Institute for Social and Economic Research.
    3. Xavier Jara Tamayo, Holguer & Bargain, Olivier & Akay, Alpaslan, 2015. "Back to Bentham: should we? Large-scale comparison of decision versus experienced utility for income-leisure preferences," ISER Working Paper Series 2015-02, Institute for Social and Economic Research.
    4. Alpaslan Akay & Olivier B. Bargain & H. Xavier Jara, 2023. "Experienced versus decision utility: large‐scale comparison for income–leisure preferences," Scandinavian Journal of Economics, Wiley Blackwell, vol. 125(4), pages 823-859, October.
    5. Akay, Alpaslan & Bargain, Olivier & Jara Tamayo, H. Xavier, 2023. "Experienced versus decision utility: large-scale comparison for income-leisure preferences," LSE Research Online Documents on Economics 117746, London School of Economics and Political Science, LSE Library.
    6. Haan, Peter, 2010. "A Multi-state model of state dependence in labor supply: Intertemporal labor supply effects of a shift from joint to individual taxation," Labour Economics, Elsevier, vol. 17(2), pages 323-335, April.

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    More about this item

    Keywords

    life-cycle labor supply; involuntary unemployment; in-work credits;
    All these keywords.

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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