Employment effects of welfare reforms: Evidence from a dynamic structural life-cycle model

Peter Haan (1, 2, 3) , Victoria Prowse (4) , Arne Uhlendorff (5, 1)

1 DIW Berlin - Deutsches Institut für Wirtschaftsforschung
2 PJSE - Paris-Jourdan Sciences Economiques
3 PSE - Paris School of Economics
4 Department of Economics - University of Oxford
5 IZA - Institute for the Study of Labor

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

Dans cet article nous développons un modèle structurel dynamique de l'offre de travail. Le modèle considère les effets de la fiscalité et du chômage. Nous utilisons le modèle pour analyser les effets d'une réforme de la fiscalité sur l'offre de travail.

Mots clés: life-cycle labor supply; involuntary unemployment; in-work credits

Domaines: Economies et finances

Peter Haan, Victoria Prowse, Arne Uhlendorff. Employment effects of welfare reforms: Evidence from a dynamic structural life-cycle model. 2008. ⟨halshs-00586748⟩