Getting the por to work three welfare - increasing reforms for a busy Germany Robin Jessen, Davud Rostam - Afschar and Viktor Steiner
By: Jessen, Robin
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Contributor(s): Rostam Afschar, Davud | Steiner, Viktor.
Material type: 
ArticlePublisher: 2017Subject(s): RENTAS BAJAS | RENTA BÁSICA | TIPO LINEAL | IMPUESTOS | POBREZA | ALEMANIA | MODELOS DE SIMULACIÓN
In:
FinanzArchiv v. 73, n. 1, March 2017, p. 1-41Summary: We study three budget-neutral reforms of the German tax and transfer system designedto improve work incentives for people with low incomes: a feasible flat tax reform thatprovides a basic income equal to the current level of the means-tested unemploymentbenefit, and two alternative reforms that involve employment subsidies to stimulateparticipation and full-time work, respectively. We estimate labor supply reactions andwelfare effects using a microsimulation model based on household data from the Socio-Economic Panel and a structural labor supply model. We find that all three reforms increaselabor supply in the first decile of the income distribution. The flat tax scenario reduces overall labor supply by about 5%; the reform designed to increase participation reduces labor supply by 1%; the reform that provides incentives to work full-time has negligible effects on overall labor supply. With equal welfare weights, aggregate welfare gains are realizable under all three reforms.
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| OP 207/2016/4-2 Absorbing shocks | OP 207/2016/4-3 Fiscal rules, fiscal space and the procyclicality of fiscal policy | OP 207/2016/4-4 The Swedish earned income tax credit | OP 207/2017/1-1 Getting the por to work | OP 207/2017/1-2 Fiscal sustainability of the German Länder | OP 207/2017/2 Manipulating fiscal forecasts | OP 207/2017/3-1 Putting Government spending shocks under the microscope |
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We study three budget-neutral reforms of the German tax and transfer system designedto improve work incentives for people with low incomes: a feasible flat tax reform thatprovides a basic income equal to the current level of the means-tested unemploymentbenefit, and two alternative reforms that involve employment subsidies to stimulateparticipation and full-time work, respectively. We estimate labor supply reactions andwelfare effects using a microsimulation model based on household data from the Socio-Economic Panel and a structural labor supply model. We find that all three reforms increaselabor supply in the first decile of the income distribution. The flat tax scenario reduces overall labor supply by about 5%; the reform designed to increase participation reduces labor supply by 1%; the reform that provides incentives to work full-time has negligible effects on overall labor supply. With equal welfare weights, aggregate welfare gains are realizable under all three reforms.
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