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Benefit take-up and labour supply incentives of interdependent means-tested benefit programmes for low-income households

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  • Kerstin Bruckmeier
  • Jürgen Wiemers

Abstract

Securing a minimum standard of living is the most obvious distributional objecitve of welfare programmes targeted at low-income households in most countries. Another objectives are administrative feasibility and economic efficiency goals like limiting adverse effec on labour supply decisions. Against this background, we analyse benefit take-up, which affects distributional objectives, and labour supply incentives of three major means-tested interdependet benefit programmes available for low-income households in Germany. We provide a broad picture of the overlap between these three programmes, focusing on the extent of overlap, given the observable income distribution, the effectiveness of these benefits in reaching their target groups and the resulting combined marginal tax rates. Thus, we utilise the static microsimulation model of the Institute for Employment Research, IAB-MSM, which consists of a detailed implementation of the German tax and Transfer system and is based on data from the German Socio-Economic Panel (GSOEP). We first contrast the resulting simulated entitlements to the three benfit programmes with the take-up of these benefits observed in the data. Next, we discuss the effective marginal tax rates, which result from the interaction of the three benefit programmes, the income tax and social security contributions, as encountered by stylized low-income households. To further illustrate the interdependency among these three means-tested programmes, we present the effects of a recent housing allowance reform in Germany implemented in 2016 on the effective marginal tax rates, government expenditures and caseloads for each programme. Our results show that all programmes are characterized by high rates of non-take-up. We also found a significant overlap between the programmes. The analysis of stylized budget constraints for example households shows that low-income households are confronted with a complex benefit structure and high marginal tax rates, which should have negative effects on take-up as well as on labour supply. Our results show that minor reforms of one programme can have significant effects on the other programmes.

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  • Kerstin Bruckmeier & Jürgen Wiemers, 2017. "Benefit take-up and labour supply incentives of interdependent means-tested benefit programmes for low-income households," EcoMod2017 10295, EcoMod.
    • Handle: RePEc:ekd:010027:10295
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    1. Bruckmeier, Kerstin & Mühlhan, Jannek & Wiemers, Jürgen, 2018. "Erwerbstätige im unteren Einkommensbereich stärken : Ansätze zur Reform von Arbeitslosengeld II, Wohngeld und Kinderzuschlag," IAB-Forschungsbericht 201809, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].

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