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Taxation, cash benefits or something else? How income-related family policies affect mothers’ labour supply in Austria, Germany and the Netherlands

Original Citation

Lechinger, V., Six, E. (2023) Taxation, cash benefits, or something else? How income-related family policies affect mothers’ labor supply in Austria, Germany, and the Netherlands. INEQ Working Paper Series, 27. WU Vienna University of Economics and Business, Vienna.

Abstract

This paper examines the role income-related family policy measures play for mothers’ labor supply decisions in three countries with particularly high shares of female part-time employment: Austria, Germany, and the Netherlands. Structural labor supply simulations and individual calibration techniques are used to calculate the effects of two types of family benefits, namely universal cash benefits and income-dependent tax-reduction measures. We simulate the ex ante behavioral responses from the abolishment of these family policies in two reform scenarios and compare the results between different household types and across countries in order to address individual and country-specific mechanisms driving female labor supply. Our results show that income-related family policies have mixed, but overall very small effects on mothers in couple households and single-parent households entering the labor market or enhancing the number of hours worked in paid work. Cash benefits are associated with small positive and negative responses for mothers in Austria and Germany, but there are no effects in the Netherlands. Tax-reductions mainly influence the labor supply of Austrian mothers in couple households, where the disposable income changes from the reform scenario are the highest. German and Dutch mothers show marginal to no behavioral responses due to changes in income tax instruments, once we correct our estimations for unobserved individual preferences. The findings suggest that income-related family policy measures do not have a significant influence on mothers’ decisions whether to work or not, or to effectively change their weekly hours of work. The country comparison further suggests that similar family policy instruments have different effects across varying institutional contexts and that it is individual preferences, rather than income subsidies, that appear to dominate the labor supply decision.

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