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.

Universal basic income. Theory and practice

“…Utilizing the utilitarian social welfare function, the authors of the study have confi rmed that the overall social benefi ts to be achieved would be higher compared to the present situation. The result of the analysis has thus confi rmed that the introduction of a universal basic income in Germany would be economically justifi ed, increase motivation to work in poorer households, and bring social benefi ts as compared to the current system (Jessen et al, 2015).…”

Unconditional basic income as an instrument for reducing income inequalities. The case of Poland

“…In three out of the four countries the hypothetical unconditional income would actually increase poverty by at least 1%. Jessen et al (2015) conducted research on the potential effects of introducing an UBI in Germany at 800 euros per month for adults and 380 euros per month for people less than 18 years of age. These figures are close to the current level of guaranteed unemployment benefits and social assistance.…”

Structural Labour Supply Models and Microsimulation

“…The FT has been analysed with behavioural microsimulation models (for instance by Aaberge et al, 2000;Fuest, Peichl, & Schaefer, 2008;Paulus & Peichl, 2008;Peichl, 2014) provides a recent survey. UBI and other members of the NIT class have also been analysed with different results (see for instance Aaberge et al, 2000Aaberge et al, , 2004Clavet, Duclos, & Lacroix, 2013;Colombino, 2015;Colombino & Narazani, 2013;Horstschräer, Clauss, & Schnabel, 2010;Islam & Colombino, 2018;Jessen, Rostam-Afschar, & Steiner, 2017;Scutella, 2004;Sommer, 2016). Islam and Colombino (2018) examine in various European countries the case for an optimal tax-transfer rule in the class NIT+FT, assuming all incomes are treated according to the same rule.…”