Las elecciones legislativas palestinas tras la muerte de Arafat

high withdrawal rates. Thus, the German transfer system is mainly targeted towards the non-working poor. For lone mothers this is even stronger, as means-tested out-of-work benefits are more generous due to an extra transfer for children. In Chapter IV (Figure 4.1) I outline the different working incentives for a lone parent household induced by the German transfer design and by transfer schemes including specific programs conditioned on the working.

For the following empirical analysis I will employ the tax and transfer model STSM to simulate the amount of tax payments and transfers and the resulting disposable net household income for all lone mothers I observe in the data. I derive the net income distribution for the lone mothers under the current tax legislation and for hypothetical reform scenarios which is necessary to derive the optimal tax schedule as defined above.6 When simulating the net household income, I explicitly model child care cost which can be of substantial size. In Germany child care is heavily subsidized, yet availability of child care slot is scarce. Therefore, I follow Wrohlich (2006) and estimate the expected child care cost according to regional availability of child care facilities.

5.4

Labor Supply Estimation

One key innovation of this analysis is that, rather than calibrating the labor supply elasticities of various groups, I make use of labor supply elasticities derived from a static structural model of labor supply. As shown in the Chapter III, elasticities derived in the static model can be interpreted as behavioral responses of households in the long run. The estimation strategy of the discrete choice labor supply estimation has been discussed in detail in Chapter III. In this application I focus only on single households thus the complexities of joint labor supply do not need to be considered. Precisely, the utility

Vijt derived by household i from making choice j in period t is assumed to depend on a

6_{As described in the previous chapters, for the non-working it is necessary to estimate gross hourly}

wages to simulate their counterfactual income when working, see Table 2.10 in the Appendix of Chapter II.

Table 5.2: Distribution of working hours

Working hours Share Monthly net income

per week in Euro

Inactivity 0 0.29 1049 Part time 1 10 0.06 1308 Part time 2 20 0.11 1436 Part time 3 25 0.07 1569 Full time 1 30 0.13 1655 Full time 2 38 0.34 1856

Notes: Germany: the following intervals for working hours have been chosen 0-5, 5-15, 15-22, 22-28, 28-35, 34+. The monthly net household income is simulated using STSM.

Source: SOEP, wave 2002-2004

function U of the mother’s leisure Lfijt, her disposable income Cijt and on observed and

unobserved household characteristics, Zit and ai, and on a random term ijt: Vijt=U(Lfijt, Cijt, Zit, ai) +ijt.

The individual specific error termai is specified nonparametrically following Heck- man and Singer (1984). I assume that ai is described by a bivariate discrete distribution

with two points of support (mass points) (a1, a2) which are constant for all households.7

Each household has a probability πk, k ∈ {1,2} for each point of the unobserved hetero-

geneity. The likelihood to be maximized is then:

L= n Y i=1 2 X k=1 πk(ak) T Y t=1 J Y j=1 P r(Yit =j)ditj, (5.4)

where ditj = 1 if j is the chosen alternative and 0 otherwise. For the specification

of the utility function, I assume again a quadratic utility function similar to Blundell, Duncan, McCrae, and Meghir (2000).

For the lone mothers, I define 6 discrete choices for working hours, inactivity, three part time and two full time alternatives. Table 5.3 yields information about the working hours alternative and the average net household income.

5.4. LABOR SUPPLY ESTIMATION 115 About half of the lone mothers in the sample work full time, about 20% have part time jobs and less than one third is not working. Differences in the net household income by working hours, are relatively modest. That is due to the generous out-of-work support for lone mothers which is withdrawn at high rates.

Labor Supply Elasticities on the Extensive and Intensive Margin

Instead of interpreting the coefficients estimated in the discrete choice model, I analyze the labor supply behavior for lone mothers by calculating labor supply elasticities given a change in net-household income. The labor supply elasticities are derived numerically based on the estimated preferences of the labor supply model. As mentioned above, to analyze the optimal design of the tax and transfer system in the discrete model, I define discrete groups along the distribution of gross earnings per week. However, the discrete choice labor supply model is defined with respect to working hours as this is the margin along which households can adjust their behavior. Therefore, I first derive extensive and intensive labor supply elasticities for each single mother along the discrete distribution of working hours. These elasticities are then transferred to the discrete gross earnings distribution by taking the average elasticity within the defined interval of gross earning. Weekly gross earnings are the combination of working hours and gross hourly wages. Hence, average elasticities at the low gross earning points include elasticities of high wage lone mothers which work few hours, and low wage lone mothers with high working hours. This procedure mimics the reality as the government only observes the gross earnings distribution.8

Note, Saez’ definition of the extensive elasticities differs from that of the conventional extensive elasticity, sometimes called the participation elasticity, or the elasticity of labor force participation, which measures the proportional increase in labor force participation in response to a 1% increase in net income in work. For comparison with other studies, therefore, I derive as well values of this conventional elasticity of labor force participation.9

8 _{One drawback from having to perform this translation is that the estimated intensive elasticity is}

not identical to the estimated extensive elasticity in the first gross earnings interval.

Table 5.3: Labor supply elasticities by working hours

Working hours Share Labor Supply Elasticity

per week Extensive Intensive

Part time 1 10 0.06 0.1 0.1 Part time 2 20 0.11 0.12 0.01 Part time 3 25 0.07 0.18 0.03 Full time 1 30 0.13 0.17 0.01 Full time 2 38 0.34 0.18 0.05 Elasticity of LFP. 0.63

Notes: The following intervals for working hours have been chosen 0-5, 5-15, 15-22, 22-28, 28-35, over 34+.

Source: SOEP, wave 2002-2004

Before discussing the design of the tax system along the gross earnings distribution, I present the elasticities defined above as well the elasticity of labor force participation along the discrete hours distribution.

Most important is the striking difference between the intensive and the extensive margin. At each discrete point, except by definition at the first, the extensive elasticity outweighs the elasticity on the intensive margin. Whereas the latter is close to zero the extensive elasticity increases over working hours to about 0.2. The estimated elasticity of labor force participation implies that an increase of the net income when working by 1% leads to increase of the labor force participation of 0.6%. This is in line with elasticities for single mothers found in previous studies (Blundell and MaCurdy, 1999).