Work incentives and the cost of redistribution via tax-transfer reforms under constrained labor supply

Benjamin Fischer, Robin Jessen and Viktor Steiner

No 2019/10, Discussion Papers from Free University Berlin, School of Business & Economics

Abstract: Using information on desired and actual hours of work, we formulate a discrete choice model of constrained labor supply. Using the German Socio-Economic Panel and the microsimulation model STSM, we find that hours and participation elasticities are substantially smaller than those in the conventional model. We evaluate two reforms for Germany. Both redistribute to the working poor. The first reform is financed through an increase in the effective marginal tax rate for welfare recipients, the second through an increase in taxes. The first reform is desirable with equal weights, the second if the social planner has substantial redistributive taste.

Keywords: Tax-benefit systems; Household labor supply; Labor market constraints; Involuntary unemployment; Marginal cost of public funds (search for similar items in EconPapers)
JEL-codes: D10 H21 J22 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-eur, nep-lma and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:fubsbe:201910

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