March 1, 2006

Income incentives to labour participation and home production; the contribution of the tax credits in the Netherlands

We set up a reduced form model of labour-market participation for young women who have to balance their career with motherhood.

The model accounts for the occurrence of future uncertain events, like child birth and early retirement, and includes time spent in home production; however it does not require the estimation of a dynamic programming model. We claim that the careful implementation of institutions can return optimal life patterns of participation without the need of a structural approach. The weaker theoretical framework is more than compensated by the rich spectrum in policy simulations that may be performed. As illustrations, we simulate the effect of two policy options regarding tax credits on the hazard rate out of work.


Mauro Mastrogiacomo
Nicole Bosch

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