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OUR ECONOMY

Labour Supply and Inequality Effects of In-Work Benefits: Evidence from Serbia

Saša Ranđelović, Jelena Žarković Rakić, Marko Vladisavljević, Sunčica Vujić

Abstract


Low labour market participation, together with the high effective tax wedge at low
wage levels, create a fertile ground for the introduction of the in-work benefits
(IWB) in Serbia. Our paper provides an ex-ante evaluation of the two IWB schemes,
directed at stimulating the labour supply and more equal income distribution. The
methodological approach combines the tax-and-benefit microsimulation model
with the discrete labour supply model. Our results show that both individual and
family-based IWB schemes would considerably boost labour market participation,
although family-based benefits would have disincentivizing effects for the
secondary earners in couples. Most of the behavioural changes take place among
the poorest individuals, with significant redistributive effects.


Keywords


in-work benefits, labour supply, inequality, discrete choice model, microsimulation

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