Publication Date: April 2013
We consider the impact of Tax credits and income support programs on female education choice, employment, hours and human capital accumulation over the life-cycle. We thus analyze both the short run incentive eﬀects and the longer run implications of such programs. By allowing for risk aversion and savings we are also able to quantify the insurance value of alternative programs. We ﬁnd important incentive eﬀects on education choice, and labor supply, with single mothers having the most elastic labor supply. Returns to labour market experience are found to be substantial but only for full-time employment, and especially for women with more than basic formal education. For those with lower education the welfare programs are shown to have substantial insurance value. Based on the model marginal increases to tax credits are preferred to equally costly increases in income support and to tax cuts, except by those in the highest education group.
Female labor supply, Welfare reform, Tax credits, Education choice, Dynamic discrete choice models, Life cycle models
JEL Classification Codes: H2, H3, J22, J24