Evaluation of Policy Options to Encourage Welfare to Work

Hielke Buddelmeyer, John Freebairn and Guyonne Kalb
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Hielke Buddelmeyer: Melbourne Institute of Applied Economic and Social Research, The University of Melbourne

Melbourne Institute Working Paper Series from Melbourne Institute of Applied Economic and Social Research, The University of Melbourne

Abstract: This paper compares five alternative policy options with the January 2006 tax and social security system. Each option is designed to cost a similar amount of 5 billion dollars to the government at the current level of labour supply. The five options are: reducing the lowest income tax rate, increasing the tax-free threshold, increasing the low income tax offset, decreasing all taper rates on own and partner’s income for a number of allowances, and introducing an Earned Income Tax Credit. The criteria for comparison are the labour supply responses, the expected budgetary cost to the government after taking into account labour supply responses, the number of winners and losers from the policy change, the effects on the distribution of effective marginal tax rates, and the effect on the number of jobless households. From the results, it is clear that the option to reduce taper rates is dominated by the other options on all criteria. The other four options each have their advantages and disadvantages; no option scores best on all criteria.

Pages: 38 pages
Date: 2006-05
New Economics Papers: this item is included in nep-pbe
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Citations: View citations in EconPapers (7)

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