Working Paper: CEPR ID: DP3905
Authors: Lennart Flood; Jrgen Hansen; Roger Wahlberg
Abstract: In this Paper, we formulate and estimate a structural, static model of household labour supply and multiple welfare programme participation. Given the complicated nature of both the income tax schedule and the benefit rules for different welfare programmes, we use unique access to a very detailed micro-simulation model to generate accurate budget sets for each work-welfare combination. Moreover, when determining the budget sets, we use extraordinary high-quality data on earnings and other types of incomes, obtained both from employers and from income tax records. The results suggest that labour supply among two-parent families in Sweden is quite inelastic. A policy simulation designed to increase labour supply incentives for low income families generated substantial positive welfare effects, despite only minor increases in labour supply and decreases in welfare participation.
Keywords: household labour supply; microsimulation; unobserved heterogeneity; welfare
JEL Codes: J20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increase in maximum benefit levels for social assistance (H53) | Increase in participation rates for social assistance (H53) |
| Increase in maximum benefit levels for housing allowance (H53) | Increase in participation rates for housing allowance (R21) |
| Reduction in income taxes for low-income earners + Reduction in maximum benefit levels (H31) | Positive equivalent variation (EV) (C32) |
| Reduction in income taxes for low-income earners + Reduction in maximum benefit levels (H31) | Differential impacts on various income groups (F61) |
| Wage increase for husbands (J31) | Increase in hours worked for women (J29) |
| Wage increase for husbands (J31) | Increase in hours worked for men (J29) |