Melbourne Institute of Applied Economic and Social Research - Research Publications

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    The Effect of Financial Incentives on Labour Supply: Evidence for Lone Parents from Microsimulation and Quasi-Experimental Evaluation
    CAI, L ; KALB, G ; TSENG, Y ; VU, THH (Institute for Fiscal Studies, 2008-06)
    The aim of this paper is to analyse the work incentive effects of a change in the Australian tax and transfer system on lone parents in July 2000. To evaluate the effect of the total change only, microsimulation can be used; but for a subgroup of lone parents, a few components of this policy change can be analysed through two alternative approaches - microsimulation and quasi-experimental evaluation. Both approaches examine the effects on the probability of employment and on average working hours. The results from microsimulation show that the combined changes introduced in July 2000 - involving reduced withdrawal rates, changed family payments and lower income tax rates - have increased labour supply for lone parents to a moderate extent. The estimated effect on average working hours when using microsimulation is very close to the effect estimated in a quasi-experimental approach using matching techniques to control for alternative influences.