Getting the Poor to Work: Three Welfare-Increasing Reforms for a Busy Germany

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe study three budget-neutral reforms of the German tax and transfer system designed to improve work incentives for people with low incomes: a feasible flat tax reform that provides a basic income which is equal to the current level of the means tested unemployment benefit, and two alternative reforms that involve employment subsidies to stimulate participation and full-time work, respectively. We estimate labor supply reactions and welfare effects using a microsimulation model based on household data from the Socio-Economic Panel (SOEP) and a structural labor supply model. We find that all three reforms increase labor supply in the first decile of the income distribution. However, the flat tax scenario reduces overall labor supply by 4.9%, the reform scenario designed to increase participation reduces labor supply by 1%, while the reform that provides improved 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.

Five Crossroads on the Way to Basic Income. An Italian Tour

“…As to Canada and Germany, the focus of the studies is on labor supply effects; the study on Australia adopts also a social welfare criterion. While in the first three exercises he reduction in labor supply (for secondary workers) is found to be larger than in the Italian case, the study of Jensen et al (2014) finds positive effects on labour supply (and welfare) of a system of the UBI + FT type. Besides differences in labor market institutions and possibly in preferences, differences in modeling approach may also explain part of these differences in labor supply effects.…”

“…While the research on means-tested policies and tax credits (or wage subsidies) is abundant, so far there are not many microeconometric or microsimulation analyses of unconditional policies. Examples are Scutella (2004) for Australia, Clavet et al (2013) for Canada and Horstschräer et al (2010) and Jensen et al (2014) for Germany. As to Canada and Germany, the focus of the studies is on labor supply effects; the study on Australia adopts also a social welfare criterion.…”

Optimal Taxation Under Different Concepts of Justness

“…We discretize hours of work into five alternatives and unemployment (weekly working hours ∈ {0, 10, 20, 30, 40, 50}) for the precise calculation of net incomes associated with labor supply decisions using the STSM (see Jessen et al 2017;Steiner et al 2012). In contrast to continuous labor supply models this does not require convexity of the budget set.…”

How Do Entrepreneurial Portfolios Respond to Income Taxation?

“…For instance, because for married couples joint filing is the rule, the tax bracket applicable for a person depends on the earnings of the spouse. Jessen et al (2017) show marginal tax rates and budget constraints for singles and married couples and provide a comprehensive overview of the German tax and transfer system. Since the PIT schedule is not adjusted for inflation in Germany, bracket creep generates additional cross-sectional variation in changes of marginal PIT rates over time, because the effects of bracket creep are largest in the progressive zones of the tax schedule.…”