samlet årgang - Økonomisk Institut - Københavns Universitet

354
NATIONALØKONOMISK TIDSSKRIFT 2005. NR. 3
labor supply behavior, employment and economic efficiency. We paid special attention
to the modern labor market literature showing that labor force participation is more responsive
to taxes and transfers than is hours worked. It was shown that the presence of
significant participation responses tend to make an in-work benefit reform inducing
individuals from welfare into work a desirable policy option. By contrast, traditional
welfare policies providing either universal or earnings-tested benefits are very costly
in terms of government revenue and efficiency resulting from adverse effects on labor
force participation. This point is reinforced by the fact that earnings- and work-tested
benefits generate the highest effective tax rates on labor force participation at the bottom
of the earnings distribution where participation elasticities are particularly high.
It needs to be emphasized, however, that the individuals who gain from in-work
benefit reforms are different from those gaining from traditional welfare policies. In
the latter case, those who benefit the most are people who are not working and have
zero earned income, presumably those in the strongest need of support. With in-work
benefit policies, people with no earnings receive no additional support and redistribution
helps only the working poor. As a result, if the government has extremely strong
redistributive tastes and puts a much higher welfare weight on those with no earnings
than on the working poor (such as in the case of a Rawlsian welfare criterion), it is possible
that expanding traditional welfare would be more desirable than introducing inwork
benefits. By contrast, if the government puts lower welfare weights on those with
no earnings than on the working poor, the case for in-work benefits would be even
stronger. It seems that conservative governments (especially in Anglo-Saxon societies)
tend to hold the latter view: those not working are seen as »lazy«, whereas the
working poor are seen as »deserving«.
While the implementation of benefits targeted to the working poor was pioneered
by the United States (starting in the 1970s), in-work benefit reforms has recently been
high on the agenda in political discussions of welfare reforms in Europe. The first
European countries to introduce in-work benefit programs were the United Kingdom
(in 1988, subsequently expanded in 1999) and Ireland (in the early 1990s). In the past
10 years, a number of other European countries have introduced programs of a similar
kind. France introduced an in-work benefit program as of 2001 (»Prime Pour l’Emploi«
or premium for employment). The Netherlands introduced an Employment Tax
Credit in 2001, while Belgium phased-in an Earned Income Tax Credit program
between 2002 and 2004. Germany introduced the so-called »Mainzer Modell« program
in 2002 which, more recently, has been replaced by SSC reductions available to
low-wage earners. Finland has recently introduced and then expanded an Earned
Income Tax Allowance, and Denmark introduced a similar type of program on a small
scale in 2004. Finally, while the Italian family benefit has not normally been conside-