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Taxes and Benefits: Work Incentive Effects of Policies

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Abstract

Using net replacement rates between net household income while out of work and in work, the authors investigate to what extent taxes and benefits may affect work incentives. They find that in 2006, net replacement rates are higher for low-income households and for households with children and a partner, attenuating work incentives. Work incentives are significantly affected by eligibility rules and the amounts of benefits, particularly unemployment benefit and social assistance. Next, the authors examine how the reform of social benefits introduced in 2007 affects work incentives. While social assistance is less generous, diminishing the incidence of high net replacement rates, the reform gives preferential treatment to households with some work income. Net replacement rates are also higher for households with children, who receive a substantially higher housing benefit, but some less well-off households consequently receive less social assistance. The authors also see that increased parental allowance has the same crowding-out effect on other income-tested benefits as higher housing benefit has on social assistance. In addition, the rise in parental allowance may lock eligible individuals in non-employment, increasing the loss of human capital. This is particularly important for lone parents, who face the highest specific unemployment rate compared to other household types.

Suggested Citation

  • Kamil Galuscak & Jan Pavel, 2012. "Taxes and Benefits: Work Incentive Effects of Policies," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 62(1), pages 27-43, February.
  • Handle: RePEc:fau:fauart:v:62:y:2012:i:1:p:27-43
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    Cited by:

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    2. Klára Kalíšková & Daniel Münich, 2015. "Dopady zvýšení daňových slev na děti na rozpočty rodin a státu [Impact of Increasing Child Tax Credit on Family and State Budgets]," Politická ekonomie, Prague University of Economics and Business, vol. 2015(7), pages 847-859.
    3. Libor Dušek & Klára Kalíšková & Daniel Münich, 2015. "The Poor or the Kids? Distributional Impacts of Taxes and Benefits Among Czech Households," Prague Economic Papers, Prague University of Economics and Business, vol. 2015(5), pages 602-617.
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    8. Beáta Mikušová Meričková & Jan Stejskal, 2014. "Hodnota statku kolektivní spotřeby [Value of Collective Consumption Goods]," Politická ekonomie, Prague University of Economics and Business, vol. 2014(2), pages 216-231.
    9. Kamil Galuscak & Petr Hlavac & Petr Jakubik, 2014. "Stress Testing the Private Household Sector Using Microdata," Working Papers 2014/02, Czech National Bank.
    10. Galuščák, Kamil & Kátay, Gábor, 2019. "Tax-benefit systems and differences in aggregate labour force participation: Comparative evidence from the Czech Republic and Hungary," Economic Systems, Elsevier, vol. 43(3).
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    14. Kamil Galuščák & Petr Hlaváč & Petr Jakubík, 2016. "Household resilience to adverse macroeconomic shocks: evidence from Czech microdata," International Review of Applied Economics, Taylor & Francis Journals, vol. 30(3), pages 377-402, May.
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    17. Jana Tepperová & Stanislav Klazar, 2012. "Vliv sociálních systémů a jejich koordinace na ekonomickou migraci [The Impact of Social Systems and their Coordination on Economic Migration]," Politická ekonomie, Prague University of Economics and Business, vol. 2012(4), pages 505-522.
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    More about this item

    Keywords

    labor supply; microsimulations; net replacement rate; tax-benefit system;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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