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Review of Economics of the Household

, Volume 17, Issue 3, pp 1025–1048 | Cite as

The impact of tax benefits on female labor supply and income distribution in Spain

  • Luis AyalaEmail author
  • Milagros Paniagua
Article

Abstract

Tax benefits targeted to low-wage workers have become very common transfer programs that seek to meet both efficiency and equity targets. An expanding literature has assessed the effects of these policies on income distribution and labor supply showing important implications for female labor participation. In this paper, we estimate the distributional and behavioral impacts of a simulated new benefit in Spain based on the replacement of the existing working mother tax credit (WMTC) using as a reference the US Earned Income Tax Credit (EITC). We simulate the effects of the proposed scheme using EUROMOD and a discrete choice model of labor supply. Our results show that the enhancement of the proposed reform would have significant and positive effects both in terms of female labor participation and inequality and poverty reduction. The introduction of this benefit would generate a substantial increase in labor participation at the extensive margin and a non-negligible reduction at the intensive margin.

Keywords

Tax benefits Female labor supply Microsimulation EITC EUROMOD 

JEL

I38 H23 J22 

Notes

Acknowledgements

We thank María Arrazola, Olga Cantó, Stacy Dickert-Conlin, Xisco Oliver, Jorge Onrubia, Raul Ramos, Jesús Ruiz-Huerta, three anonymous referees and the editor and many seminar participants at Alicante, Atlanta, Bucharest, Dublin, Girona, and Madrid for their helpful discussions and comments. Financial support for this research was provided by the Ministerio de Economía y Competitividad (ECO2016-76506-C4-3-R) and Comunidad de Madrid (S2015/HUM3416). The results presented here are based on EUROMOD version G4.0 and Spanish ECV 2014. EUROMOD is maintained, developed and managed by the Institute for Social and Economic Research (ISER) at the University of Essex, in collaboration with national teams from the EU member states. We are indebted to the many people who have contributed to the development of EUROMOD. The process of extending and updating EUROMOD is financially supported by the European Union Programme for Employment and Social Innovation “Easi” (2014-2020). The results and their interpretation are the authors’ responsibility.

Compliance with ethical standards

Conflict of interest

The authors declare that they have no conflict of interest.

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Universidad Rey Juan CarlosMadridSpain
  2. 2.Instituto de Estudios FiscalesMadridSpain
  3. 3.EQUALITASMadridSpain

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