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Tax Incentives and Family Labor Supply in Austria

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Abstract

This paper approaches the question whether and to what extent a policy shift from universal child transfers towards child tax deductibles is capable of activating (mostly female) unused labor market potential in Austria. We develop a discrete choice labor supply model based on the EU-SILC datasets 2004-2010 and present static uncompensated own and cross wage elasticities at the intensive and extensive margins. We find that the family policy reform 2009 had only small employment effects, most of them being generated through the introduction of a child care deductible. To illustrate the employment potential of a shift from transfers to tax deductibles we propose several simulations showing that such a policy shift would yield an increase in full time equivalents of approximately 1.3% overall, with females in couples increasing their labor supply by up to 3.9%. Although the proposed policy shifts have highly regressive effects in terms of their impact on the distribution of disposable income, we show that phasing-out the tax deductible at higher income allows, in principle, for the compensation of lower-income households without jeopardizing positive employment effects.

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  • Tibor Hanappi & Sandra Müllbacher, 2012. "Tax Incentives and Family Labor Supply in Austria," NRN working papers 2012-12, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
  • Handle: RePEc:jku:nrnwps:2012_12
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    Cited by:

    1. Sandra Müllbacher & Wolfgang Nagl, 2017. "Labour supply in Austria: an assessment of recent developments and the effects of a tax reform," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 44(3), pages 465-486, August.
    2. Amadeo Fuenmayor & Rafael Granell & Mauro Mediavilla, 2018. "The effects of separate taxation on labor participation of married couples. An empirical analysis using propensity score," Review of Economics of the Household, Springer, vol. 16(2), pages 541-561, June.
    3. Michael Christl & Silvia De Poli & Janos Varga, 2022. "Reducing the income tax burden for households with children: an assessment of the child tax credit reform in Austria," Fiscal Studies, John Wiley & Sons, vol. 43(2), pages 151-177, June.
    4. Tibor Paul Hanappi & Sandra Müllbacher, 2016. "Tax incentives and family labor supply in Austria," Review of Economics of the Household, Springer, vol. 14(4), pages 961-987, December.
    5. Yeon Jeong Son, 2018. "Do childbirth grants increase the fertility rate? Policy impacts in South Korea," Review of Economics of the Household, Springer, vol. 16(3), pages 713-735, September.

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