How Taxes and Welfare Benefits Affect Work Incentives: A Life‐Cycle Perspective

Abstract

Personal taxes and benefits affect the incentive to work over the life cycle by altering income–age profiles, insuring against adverse shocks and changing the returns to human capital. In this paper, we show how a life‐cycle perspective alters our impression of how the UK tax and benefit system affects women's work incentives. Given that actual longitudinal data conflate age effects, cohort effects and policy effects, and, in the UK, are not available covering the full life cycle, we use simulated data produced by a rich, dynamic structural model of female labour supply and human capital that incorporates family formation and fertility. We find that individuals experience considerable variability in work incentives across life that outweighs the variability across individuals. Changes in the presence of children and a partner, as well as the level of any partner's earnings, are key to explaining these patterns: work incentives vary dramatically depending on family composition and the earnings of any partner, especially for the lower‐skilled, and most women experience a number of different family types during the course of their lives.

The ‘living wage’ and low income: Can adequate pay contribute to adequate family living standards?

“…Nevertheless, low-paid workers’ incomes skew strongly towards the bottom end of the distribution. Brewer et al (2009: 20–29) showed that while few workers receiving the NMW were in households in income decile group 1 (which is dominated by non-working households), over six in ten were in the bottom four decile groups, with the greatest number in decile group 3. Moreover, nearly half of those on the NMW were in the bottom 20% of working households by income and nearly three quarters in the bottom 40%.…”

“…Different groups of low-paid workers face considerably different risks of low household income. The six in ten NMW families for whom the NMW is the most important single source of earnings are concentrated in decile groups 2 to 4, whereas those for whom the NMW is paid only for a second job or secondary earner are concentrated in decile groups 4 to 6 (Brewer et al 2009: 28–29). As a consequence, single people and lone parents, who do not have partners contributing to household income, are particularly likely to have low incomes if on the NMW: for both these groups nearly six in ten are in the bottom 30% of the population by household income.…”

https://www.esri.ie/publications/poverty-income-inequality-and-living-standards-in-ireland-third-annual-report

“…Other influences include the responsiveness of individuals to these financial work incentives -on which there are limited estimates for the Irish population -as well as more dynamic considerations, like those considered by Brewer and Shaw (2018).…”

Système universel de retraite et taux de taxation marginal implicite des cotisations retraite

“…Il existe une littérature plus vaste qui traite de la question du taux marginal de l'ensemble des prélèvements sur les revenus du travail mais elle retient rarement une approche de cycle de vie et elle considère souvent les cotisations retraite comme une pure taxe (pour une étude récente sur la France, voir, par exemple, Fourcot et Sicsic, 2017). Certains de ces travaux abordent toutefois les prélèvements sur le cycle de vie mais ces derniers portent plutôt sur des pays anglo-saxons et n'étudient pas spécifiquement les retraites (voir, notamment, Altig et al, 2020et Brewer et Shaw, 2018, pour une étude respectivement sur les États-Unis et sur le Royaume-Uni). 3.…”