Active Welfare State Policies and Labour Supply in Spain

Abstract

This paper shows the effect of tax reforms aimed at encouraging Spanish mothers to join the labour market (or not to abandon it). The simulated reforms replace the current in-work benefit (of ¿100 a month) with more generous scenarios. The analysis is conducted using a behavioural microsimulation model of the Spanish tax-benefit system. The results show that in-work benefits boost the female labour participation rate and labour supply of low-income households (those with higher elasticities). Indeed there is an improvement in social welfare, but we should not overlook the impact on tax revenue.