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The long-term effects of in-work benefits in a life-cycle model for policy evaluation

Author

Listed:
  • Monica Costa Dias

    (IFS)

  • Jonathan Shaw

    (Institute for Fiscal Studies)

  • Costas Meghir

    (Yale)

  • Richard Blundell

    (UCL)

Abstract

This paper presents a life-cycle model of woman's labour supply, human capital formation and savings for the evaluation of welfare-to-work and tax policies. Women's decisions are formalised in a dynamic and uncertain environment. The model includes a detailed characterisation of the tax system and of the dynamics of family formation while explicitly considering the determinants of employment and education decisions: (i) contemporaneous incentives to work, (ii) future consequences for employment through human capital accumulation and (iii) anticipatory effects on the value of employment and education. The choice of parameters follows a careful calibration procedure, based of a large sample of data moments from the British population during the nineties using BHPS data. Many important features established in the empirical literature are reproduced in the simulation exercises, including the employment effects of the WFTC reform in the UK. The model is used to gain further insight into the responses to two recent policy changes, the October 1999 WFTC and the April 2003 WTC/CTC reforms. We find small but non-negligible anticipation effects on employment and education.

Suggested Citation

  • Monica Costa Dias & Jonathan Shaw & Costas Meghir & Richard Blundell, 2012. "The long-term effects of in-work benefits in a life-cycle model for policy evaluation," 2012 Meeting Papers 93, Society for Economic Dynamics.
    • Handle: RePEc:red:sed012:93
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    References listed on IDEAS

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    Cited by:

    1. Müller, Kai-Uwe & Neumann, Michael & Wrohlich, Katharina, 2018. "Labor Supply under Participation and Hours Constraints: An Extended Structural Model for Policy Evaluations," IZA Discussion Papers 12003, Institute of Labor Economics (IZA).
    2. Mike Brewer & Monica Costa Dias & Jonathan Shaw, 2013. "How taxes and welfare distort work incentives: static lifecycle and dynamic perspectives," IFS Working Papers W13/01, Institute for Fiscal Studies.
    3. Laun, Lisa, 2019. "In-work benefits across Europe," Working Paper Series 2019:16, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    4. Kai-Uwe Müller & Michael Neumann & Katharina Wrohlich, 2018. "Labor Supply under Participation and Hours Constraints," Discussion Papers of DIW Berlin 1758, DIW Berlin, German Institute for Economic Research.

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