Employment effects of welfare reforms -Evidence from a dynamic structural life-cycle model

In this paper we develop a dynamic structural life-cycle model of labor supplybehavior which fully accounts for the eects of income tax and transfers on la-bor supply incentives. Additionally, the model recognizes the demand side drivenrationing risk that might prevent individuals from realizing their optimal laborsupply state, resulting in involuntary unemployment. We use this framework tostudy the employment eects of transforming a traditional welfare state, as is cur-rently in place in Germany, towards a more Anglo-American system in which alarge proportion of transfers are paid to the working poor...