In the last decade, interest in in-work benefits has grown in most European countries. In-work benefits are means-tested cash transfers given to individuals, through the tax system, conditional on their employment status. They are intended to enhance the incentives to accept work and redistribute resources to low income groups. In-work benefits might be one of the pillars of a redesigned tax-benefit system in Italy aiming at increasing the female labour market participation, among the lowest in Europe, and redistributing resources to the working poor.
This paper explores the potential scope to enhance both the incentive and the redistributive effects of the Italian tax system. Taking into account all details of the tax-benefit system by using EUROMOD, I apply a static structural discrete choice model of labour supply to analyse behavioural reactions of women in couples and lone mothers separately. The potential introduction of a family based and an individual in-work benefit is financed through the abolition of the existing tax credit targeted to inactive people.
The results confirm that the abolition of the existing tax credit for dependent person and the introduction of new family in-work benefits might lead to an average increase of female labour supply of 3 percentage points. As expected, individual in-work benefits seem to be more efficient for women in couples who would enhance their labour market participation by 5 percentage points. In both cases, most of the behavioural changes would take place in the bottom part of the income distribution where potential gainers are concentrated.
Presented by:
Francesco Figari (ISER)
Date & time:
December 1, 2010 1:00 pm - December 1, 2010 2:00 pm
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