Welfare reform in European countries: A microsimulation analysis

Herwig Immervoll, Henrik Jacobsen Kleven, Claus Thustrup Kreiner, Emmanuel Saez

Research output: Contribution to journalArticlepeer-review

144 Scopus citations

Abstract

This article compares the effects of increasing traditional welfare to introducing in-work benefits in the 15 (pre-enlargement) countries of the European Union. We use a labour supply model encompassing responses to taxes and transfers along both the intensive and extensive margins, and the EUROMOD microsimulation model to estimate current marginal and participation tax rates. We quantify the equity-efficiency trade-off for a range of elasticity parameters. In most countries, because of large existing welfare programmes with high phase-out rates, increasing traditional welfare is undesirable unless the redistributive tastes of the government are extreme. In contrast, the in-work benefit reform is desirable in a very wide set of cases.

Original languageEnglish (US)
Pages (from-to)1-44
Number of pages44
JournalEconomic Journal
Volume117
Issue number516
DOIs
StatePublished - Jan 2007
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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