Getting the Poor to Work: Three Welfare-Increasing Reforms for a Busy Germany

Robin Jessen, Davud Rostam-Afschar and Viktor Steiner

FinanzArchiv: Public Finance Analysis, 2017, vol. 73, issue 1, 1-41

Abstract: We study three budget-neutral reforms of the German tax and transfer system designed to improve work incentives for people with low incomes: a feasible flat tax reform that provides a basic income equal to the current level of the means-tested unemployment benefit, and two alternative reforms that involve employment subsidies to stimulate participation and full-time work, respectively. We estimate labor supply reactions and welfare effects using a microsimulation model based on household data from the Socio-Economic Panel and a structural labor supply model. We find that all three reforms increase labor supply in the first decile of the income distribution. The flat tax scenario reduces overall labor supply by about 5%; the reform designed to increase participation reduces labor supply by 1%; the reform that provides incentives to work full-time has negligible effects on overall labor supply. With equal welfare weights, aggregate welfare gains are realizable under all three reforms.

Keywords: flat tax; basic income; work incentives; poverty; microsimulation (search for similar items in EconPapers)
JEL-codes: H31 I38 J22 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (19)

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Related works:
Working Paper: Getting Poor to Work: Three Welfare Increasing Reforms for a Busy Germany (2015)
Working Paper: Getting the poor to work: Three welfare increasing reforms for a busy Germany (2015)
Software Item: GRAPH3D: Stata module to draw colored, scalable, rotatable 3D plots (2014)
Working Paper: Getting the Poor to Work: Three Welfare Increasing Reforms for a Busy Germany
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DOI: 10.1628/001522108X14864674910065

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