Na azani, Edli a; Riscado, Sa a; Wemans, La a
Wo king Pape
Labou supply esponses o iscal e o ms in Po ugal: An
illus a ion wi h ecen PIT and child bene i e o ms
JRC Wo king Pape s on Taxa ion and S uc u al Re o ms, No. 6/2024
P o ided in Coope a ion wi h:
Join Resea ch Cen e (JRC), Eu opean Commission
Sugges ed Ci a ion: Na azani, Edli a; Riscado, Sa a; Wemans, La a (2024) : Labou supply esponses
o iscal e o ms in Po ugal: An illus a ion wi h ecen PIT and child bene i e o ms, JRC Wo king
Pape s on Taxa ion and S uc u al Re o ms, No. 6/2024, Eu opean Commission, Join Resea ch
Cen e (JRC), Se ille
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Na azani, E., Riscado, S., Wemans, L.
2024
An illus a ion wi h ecen PIT and child bene i e o ms
JRC Wo king Pape s on Taxa ion and S uc u al Re o ms No.
6/2024
Labou supply esponses o iscal e o ms
in Po ugal
JRC137400
Se illa: Eu opean Commission, 2024
© Eu opean Union, 2024
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How o ci e his epo : Eu opean Commission, Join Resea ch Cen e, Na azani, E., Riscado, S. and Wemans, L., Labou supply esponses o
iscal e o ms in Po ugal, Eu opean Commission, Se illa, 2024, JRC137400.
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Con ac in o ma ion
Name: Sal ado BARRIOS
Add ess: Edi icio EXPO, c/ Inca Ga cilaso 3, 41092 Se ille, Spain
Email:
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- esea ch-cen e.ec.eu opa.eu
i
Con en s
Abs ac .............................................................................................................................................................................................................................................................. 1
Acknowledgemen s ................................................................................................................................................................................................................................. 1
Execu i e Summa y ................................................................................................................................................................................................................................ 2
1 In oduc ion..................................................................................................................................................................................................................................................... 3
2 The Po uguese case.............................................................................................................................................................................................................................. 5
2.1 The labou ma ke ...................................................................................................................................................................................................................... 5
2.2 Policy changes ................................................................................................................................................................................................................................ 7
3 The mic oeconome ic model EUROLAB .......................................................................................................................................................................... 10
4 Empi ical speci ica ion and es ima ion esul s .......................................................................................................................................................... 13
4.1 U ili y pa ame e s .................................................................................................................................................................................................................... 13
4.2 Labou supply elas ici ies ................................................................................................................................................................................................. 15
5 Policy e o ms e ec s ....................................................................................................................................................................................................................... 17
5.1 Non beha iou al e ec s .................................................................................................................................................................................................... 17
5.2 Beha iou al e ec s ................................................................................................................................................................................................................ 17
5.3 Employmen e ec s .............................................................................................................................................................................................................. 20
6 Conclusions .................................................................................................................................................................................................................................................. 21
Re e ences ............................................................................................................................................................................................................................................................. 22
Lis o igu es ..................................................................................................................................................................................................................................................... 23
Lis o ables ........................................................................................................................................................................................................................................................ 24
Appendix .................................................................................................................................................................................................................................................................. 25
1
Abs ac
In he las decade, wo majo dis up ions – he G ea Recession and he Co id sani a y c isis – hi he wo ld
economy and ga e ise o a ba e y o go e nmen measu es. In Po ugal, a e he iscal consolida ion e o s
implemen ed o ackle he se e e so e eign deb c isis ha accompanied he G ea Recession, some es ic i e
iscal measu es we e e e sed. Th oughou and a e he pandemic c isis, iscal measu es main ained hei
expansiona y na u e, wi h ein o cemen s o child bene i s and income ax cu s. This pape quan i ies he
dis ibu ional and labou ma ke impac s o policy changes implemen ed on he income ax sys em and on he
child bene i in Po ugal in 2022 and 2023. Fi s -o de e ec s o hese measu es, quan i ied using he
EUROMOD mic osimula ion model, e eal ha changes o he income ax schedule exhibi a eg essi e pa e n,
whe eas hose a ec ing he minimum un axed income we e mo e e enly dis ibu ed. In con as , he child
bene i ein o cemen s show a p og essi e impac . Employing EUROLAB, a beha iou al labou supply and
demand model, we ind ha labou supply esponses a e ela i ely modes , due o he small di ec impac s o
he measu es on disposable income. O e all, labou supply, bo h in e ms o hou s o wo k and pa icipa ion,
eac s posi i ely o he ax b eaks bu nega i ely o he ein o cemen o he child bene i , wi h his nega i e
eac ion being concen a ed on speci ic income and gende g oups, such as single pa en s wi h child en o
amilies in lowe income quin iles.
Acknowledgemen s
The au ho s would like o hank he pa icipan s o he 1s Wel a e and Policy Con e ence (Bo deaux, May 2023)
and o he Annual EUROMOD Resea ch Wo kshop (Se ille, Sep embe 2023) o hei aluable commen s and
sugges ions.
Au ho s
Edli a Na azani, Join Resea ch Cen e o he Eu opean Commission and Collegio Ca lo Albe o
Sa a Riscado, Banco de Po ugal
La a Wemans, Banco de Po ugal
2
Execu i e Summa y
In he las decade, he Po uguese economy aced majo economic dis up ions, he las one being he Co id-19
sani a y c isis in 2020. These ga e ise o he announcemen and implemen a ion o iscal measu es o
di e en na u e and o en wi h di e en aims. This pape ocuses on ecen iscal measu es ega ding PIT and
he child bene i , implemen ed in 2022 o announced in ha yea o be ully implemen ed by 2024, and
assesses he labou supply esponses and o e all employmen e ec s po en ially p oduced. This analysis b ings
o wa d h ee main con ibu ions. Fi s , o ou knowledge, his s udy, based on a s uc u al labou supply model,
is unique o Po ugal and se s he pa h o mo e ocused s udies on labou supply beha iou o Po uguese
households. The second con ibu ion is ha i p o ides a eal ime assessmen o po en ial e ec s o iscal
e o ms ha can guide he policymake s o imp o e he design and he pu pose o he iscal policy ools o
be e a ge he needs o speci ic segmen s o popula ions ha can be mo e esponsi e. The hi d con ibu ion
is ha i p o ides a unique se o labou supply elas ici ies o he Po uguese households ha can be used by
esea che s o calib a e pa ame e s o o he policy e o ms o in a gene al equilib ium modelling con ex .
Two PIT e o ms and one child bene i e o m a e analysed. The i s PIT- ela ed e o m consis s in he inc ease
in he numbe o PIT b acke s, om se en o nine, combined wi h he upda e o hese b acke s and he educ ion
o he ax a e on he second b acke . This i s se o measu es bene i ed p opo ionally mo e he households
wi h highe PIT incidence. The second PIT e o m ega ded he minimum un axed income – i.e., he ma ke
income exemp ed om PIT – aimed a co ec ing he 100% ma ginal PIT axa ion o wages jus abo e he
minimum wage. Rega ding he child bene i , a mul i ude o changes o his social ans e ha en aken place in
2022, all inc easing i s gene osi y. Fi s ly, a minimum amoun was in oduced o child en below an ex eme
po e y b acke , which bene i ed child en abo e h ee. Secondly, a complemen a y ans e o amilies wi h
child en was c ea ed ensu ing ha , be ween he child bene i and he PIT child deduc ion, e e y amily ecei es
a minimum amoun pe child. Thi dly, he amoun s ans e ed o olde child en in he i s and second b acke s
o he bene i we e ein o ced. Finally, he op limi o he hi d b acke was ex ended o include mo e amilies.
We quan i y i s and second o de e ec s o he abo e-men ioned e o ms using he EUROMOD and EUROLAB
models. EUROMOD is he mic osimula ion model o Eu opean Union coun ies, which allows o implemen wi h
de ail ax and bene i e o ms and o ob ain “mo ning-a e ” e ec s o he simula ed policy changes. To p o ide
an o e iew o he labou supply esponses o he abo e-men ioned iscal e o ms we use he beha iou al
model EUROLAB. In a nu shell, EUROLAB is a mul idimensional disc e e choice model ha es ima es indi idual
changes in supplied hou s o wo k and pa icipa ion as a eac ion o a e o m, o en e e ed o in he li e a u e
as “second-o de ” e ec s. Fu he mo e, he model allows o he quan i ica ion o demand-side e ec s o a
labou ma ke ha , depending on how elas ic i is, would lead o di e en employmen le els and wage a es
a he equilib ium. The EUROLAB model elies on EUROMOD o simula e he coun e ac ual disposable income
(as a p oxy o consump ion) in he di e en labou supply al e na i es conside ed, o es ima e a se o
beha iou al pa ame e s. We un hese wo models upon he Po uguese module o S a is ics Income and Li ing
Su ey (EU-SILC) o 2020, p oduced by he Eu os a and ha is ep esen a i e o he Po uguese popula ion.
The esul s show ha labou supply elas ici ies in Po ugal a e ela i ely small, highe o emales han males,
and especially igid in he in ensi e ma gin. This e lec s he speci ici ies o he Po uguese labou ma ke ,
cha ac e ized by high pa icipa ion (including emale pa icipa ion) and low p e alence o pa ime jobs in he
Eu opean con ex . Rega ding he dis ibu ional i s o de e ec s o he di e en policy shocks on households’
disposable income, hese a e a he di e se. The changes o he PIT ax schedule a e clea ly eg essi e, while
he e o m o he minimum un axed income has a la e p o ile ac oss he income dis ibu ion. The child bene i
e o m, a ge ing only amilies wi h child en, has a s ong p og essi e na u e. None o hese e o ms has a
s ong impac on disposable income, bu small changes o he ax and ans e s design may, ne e heless, ha e
ele an e ec s on labou ma ke incen i es, especially o some household g oups. Ou indings indica e ha
o e all e ec s on hou s wo ked and pa icipa ion a e also small, wi h PIT e o ms p oducing posi i e e ec s on
bo h labou ma gins and child bene i changes ha ing he opposi e e ec . Women in couples and single a he s
seem o be he mos a ec ed g oups by he PIT schedule e o ms, while he minimum un axed income policy
change has opposing e ec s in di e en popula ion g oups (o e all ha ing a negligible e ec on he agg ega e).
As expec ed, he child bene i ein o cemen impac s mo e nega i ely he labou supply esponse o single
pa en s. In e ms o income g oups, he posi i e e ec s o he change in he PIT schedule a e e enly dis ibu ed,
while hose ela ed o he minimum un axed income change a e declining as income inc eases (i a ge s mainly
low-income amilies). Finally, child bene i nega i e impac s seem o be ele an o bo h men and women,
being especially concen a ed in he i s quin ile.
3
1 In oduc ion
In he las decade, he Po uguese economy aced wo majo economic dis up ions – he G ea Recession, which
ansla ed in o a so e eign deb c isis, and he Co id-19 sani a y c isis. These ga e ise o he announcemen
and implemen a ion o iscal measu es o di e en na u e and o en wi h di e en aims. In he a e ma h o
he so e eign deb c isis, he Po uguese Go e nmen implemen ed a se ies o iscal consolida ion measu es.
The i s se o such measu es, implemen ed in 2010, included changes o he child bene i , educing he
amoun s ans e ed o younge child en and elimina ing he bene i s paid o amilies wi h highe incomes.
Du ing he Po uguese Financial Assis ance P og amme, signed in 2011, se e al changes o he pe sonal income
ax (PIT) we e implemen ed, including a educ ion o he numbe o ax b acke s, in 2013. Following his pe iod,
se e al consolida ion measu es we e e e ed and, in 2018, he numbe o PIT b acke s was inc eased back.
Be ween 2017 and 2019, he child bene i was ex ended o co e mo e amilies and i s amoun s we e
ein o ced wi h a ocus on younge child en and single-pa en amilies. Du ing he pandemic c isis, he iscal
measu es kep hei expansiona y na u e, aimed mos ly a suppo ing employmen . F om 2021 onwa ds,
ein o cemen s o he child bene i and changes o he PIT schedule we e announced, including also measu es
o mi iga e he impac o he ising in la ion in 2022.
Gi en his p oli ic policy backg ound, his pape ocuses on he ecen iscal measu es ega ding PIT and he
child bene i , implemen ed in 2022 o announced in ha yea o be ully implemen ed by 2024, and assesses
he labou supply esponses and o e all employmen e ec s po en ially p oduced. Two PIT e o ms and one
child bene i e o m a e analysed. The i s PIT- ela ed e o m consis s in he inc ease in he numbe o PIT
b acke s, om se en o nine, combined wi h he upda e o hese b acke s and he educ ion o he ax a e on
he second b acke . This i s se o measu es bene i ed p opo ionally mo e he households wi h highe PIT
incidence. The second PIT e o m ega ded he minimum un axed income – i.e., he ma ke income exemp ed
om PIT – aimed a co ec ing he 100% ma ginal PIT axa ion o wages jus abo e he minimum wage.
Rega ding he child bene i , a mul i ude o changes o his social ans e ha en aken place in 2022, all
inc easing i s gene osi y. Fi s ly, a minimum amoun was in oduced o child en below an ex eme po e y
b acke , which bene i ed child en abo e h ee. Secondly, a complemen a y ans e o amilies wi h child en
was c ea ed ensu ing ha , be ween he child bene i and he PIT child deduc ion, e e y amily ecei es a
minimum amoun pe child. Thi dly, he amoun s ans e ed o olde child en in he i s and second b acke s
o he bene i we e ein o ced. Finally, he op limi o he hi d b acke was ex ended o include mo e amilies.
We quan i y i s and second o de e ec s o he abo e-men ioned e o ms using he EUROMOD and EUROLAB
models. EUROMOD is he mic osimula ion model o Eu opean Union coun ies, which allows o implemen wi h
de ail ax and bene i e o ms and o ob ain “mo ning-a e ” e ec s o he simula ed policy changes.1 To p o ide
an o e iew o he labou supply esponses o he abo e-men ioned iscal e o ms we use he beha iou al
model EUROLAB (see Na azani e al., 2023). In a nu shell, EUROLAB is a mul idimensional disc e e choice model
ha es ima es indi idual changes in supplied hou s o wo k and pa icipa ion as a eac ion o a e o m, o en
e e ed o in he li e a u e as “second-o de ” e ec s. Fu he mo e, he model allows o he quan i ica ion o
demand-side e ec s o a labou ma ke ha , depending on how elas ic i is, would lead o di e en employmen
le els and wage a es a he equilib ium. The EUROLAB model elies on EUROMOD o simula e he
coun e ac ual disposable income (as a p oxy o consump ion) in he di e en labou supply al e na i es
conside ed, o es ima e a se o beha iou al pa ame e s. We un hese wo models upon he Po uguese module
o S a is ics Income and Li ing Su ey (EU-SILC) o 2020, p oduced by he Eu os a and ha is ep esen a i e
o he Po uguese popula ion. I has de ailed in o ma ion on socio-demog aphic cha ac e is ics a he indi idual
and household le el ha allows us o s udy labou supply esponses o di e en ypes o households.
Fu he mo e, SILC da a con ain in o ma ion on indi iduals’ job sea ch e o s such as ac i e job sea ch in he
las ou weeks and a ailabili y o wo k, ha allows o dis inguish unemploymen om olun a y non-
pa icipa ion.2
The dis ibu ional i s o de e ec s o he di e en policy shocks on households’ disposable income a e a he
di e se. The changes o he PIT ax schedule a e clea ly eg essi e, while he e o m o he minimum un axed
1 The EUROMOD model is main ained and de eloped by he Eu opean Commission Join Resea ch Cen e. Fo u he de ails
on he model isi h ps://eu omod-web.j c.ec.eu opa.eu/ and see Su he land and Figa i (2013).
2 Fo mo e de ails on EU-SILC see h ps://ec.eu opa.eu/eu os a /web/mic oda a/eu opean-union-s a is ics-on-income-and-
li ing-condi ions.
4
income has a la e p o ile ac oss he income dis ibu ion. The child bene i e o m, a ge ing only amilies
wi h child en, has a s ong p og essi e na u e. None o hese e o ms has a s ong impac on disposable income,
bu small changes o he ax and ans e s design may, ne e heless, ha e ele an e ec s on labou ma ke
incen i es, especially o some household g oups. Also, as small inc emen al e o ms occu mo e equen ly
han undamen al ax changes, es ima ing hese e ec s is a policy ele an issue. Ou indings indica e ha
o e all e ec s on hou s wo ked and pa icipa ion a e also small, wi h PIT e o ms p oducing posi i e e ec s on
bo h labou ma gins and child bene i changes ha ing he opposi e e ec . Women in couples and single a he s
seem o be he mos a ec ed g oups by he PIT schedule e o ms, while he minimum un axed income policy
change has opposing e ec s in di e en popula ion g oups (o e all ha ing a negligible e ec on he agg ega e).
As expec ed, he child bene i ein o cemen impac s mo e nega i ely he labou supply esponse o single
pa en s. In e ms o income g oups, he posi i e e ec s o he change in he PIT schedule a e e enly dis ibu ed,
while hose ela ed o he minimum un axed income change a e declining as income inc eases (i a ge s mainly
low-income amilies). Finally, child bene i nega i e impac s seem o be ele an o bo h men and women,
being especially concen a ed in he i s quin ile.
This pape has h ee main con ibu ions. Fi s , o ou knowledge, his analysis, based on a s uc u al labou
supply model, is unique o Po ugal and se s he pa h o mo e ocused s udies on labou supply beha iou o
Po uguese households. The second con ibu ion is ha i p o ides a eal ime assessmen o po en ial e ec s
o iscal e o ms ha can guide he policymake s o imp o e he design and he pu pose o he iscal policy
ools o be e a ge he needs o speci ic segmen s o popula ions ha can be mo e esponsi e. The hi d
con ibu ion is ha i p o ides a unique se o labou supply elas ici ies o he Po uguese households ha can
be used by esea che s o calib a e pa ame e s o o he policy e o ms o in a gene al equilib ium modelling
con ex .
The pape is o ganized as ollows. Sec ion 2 desc ibes he Po uguese labou ma ke con ex and he policy
changes analysed, while Sec ion 3 p o ides a desc ip ion o he modelling ools used in he analysis. Sec ion 4
discusses he es ima es o u ili y pa ame e s and labou supply elas ici ies. Sec ion 5 p esen s and discusses
he di ec impac s on households’ disposable income and he labou supply e ec s igge ed by he policy
changes. Sec ion 6 concludes.
5
2 The Po uguese case
2.1 The labou ma ke
The e olu ion o he Po uguese labou ma ke in he las decade was ma ked by wo majo c ises: he G ea
Recession ha ollowed he 2008 inancial c isis and, mo e ecen ly, he pandemic c isis o 2020. Bo h e en s
mean d as ic GDP d ops – 4.1% in 2012, and 8.3% in 2020 – which ansla ed in o qui e di e en pa e ns in
e ms o employmen and unemploymen e olu ion, as can be obse ed in Figu e 1. In he la e c isis, he
employmen decline was hea ily con ained by employmen suppo measu es, such as job e en ion schemes,
and i s ebound was much as e . By he end o 2021, he numbe o employees eached i s p e-pandemic le el.
Mo eo e , he unemploymen a e has been s eadily declining since he peak eached in 2013, egis e ing only
a sligh inc ease in 2020. On he o he hand, hou s wo ked d opped d ama ically in 2020 and eco e ed slowe ,
bu hei le els we e close o he ones egis e ed in 2019 al eady by he end o 2022. This con as s g ea ly
wi h he employmen eco e y a e he inancial and so e eign deb c isis. I ook a ound i e yea s, om he
2012 ough, o each back he 2010 le els.
Figu e 1: E olu ion o selec ed labou ma ke indica o s o Po ugal, be ween 2010 and 2022
Panel A: Numbe o employees and hou s wo ked
(index, 2010=100)
Panel B:
Unemploymen a e and GDP annual
g ow h (%)
Sou ce: S a is ics Po ugal.
The low unemploymen a e combined wi h he s ong ebound o he Po uguese economy in he a e ma h o
he pandemic c isis ga e ise o a igh labou ma ke . This has been accompanied by a sus ained g ow h o
emune a ions, a e he se e e and long adjus men ha ook place du ing he G ea ecession pe iod, as we
can obse e in Figu e 2. The successi e inc eases in he Po uguese minimum wage ha e also con ibu ed o
his posi i e end.
12
𝛾𝛾𝑀𝑀=𝛽𝛽𝑀𝑀1𝑛𝑛𝑛𝑛𝑛𝑛𝑛𝑛ℎ3+𝛽𝛽𝑀𝑀2𝑛𝑛𝑛𝑛𝑛𝑛𝑛𝑛ℎ6+𝛽𝛽𝑀𝑀3𝑛𝑛𝑛𝑛𝑛𝑛𝑛𝑛ℎ+𝛽𝛽𝑀𝑀4𝑎𝑎𝑎𝑎𝑠𝑠 +𝛽𝛽𝑀𝑀5𝑎𝑎𝑎𝑎𝑠𝑠2+𝛽𝛽𝑀𝑀6𝑀𝑀𝑠𝑠𝑎𝑎𝑀𝑀𝑎𝑎𝑛𝑛𝑀𝑀 +𝛽𝛽𝑀𝑀7𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑎𝑎𝑎𝑎𝑎𝑎𝑠𝑠
+𝛽𝛽𝑀𝑀8𝐶𝐶𝑎𝑎𝐶𝐶𝑠𝑠𝑀𝑀𝑎𝑎𝐶𝐶
𝛾𝛾𝐹𝐹=𝛽𝛽𝐹𝐹1𝑛𝑛𝑛𝑛𝑛𝑛𝑛𝑛ℎ3+𝛽𝛽𝐹𝐹2𝑛𝑛𝑛𝑛𝑛𝑛𝑛𝑛ℎ6+𝛽𝛽𝐹𝐹3𝑛𝑛𝑛𝑛𝑛𝑛𝑛𝑛ℎ+𝛽𝛽𝐹𝐹4𝑎𝑎𝑎𝑎𝑠𝑠 +𝛽𝛽𝐹𝐹5𝑎𝑎𝑎𝑎𝑠𝑠2 + 𝛽𝛽𝐹𝐹6𝑀𝑀𝑠𝑠𝑎𝑎𝑀𝑀𝑎𝑎𝑛𝑛𝑀𝑀 +𝛽𝛽𝐹𝐹7𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑎𝑎𝑎𝑎𝑎𝑎𝑠𝑠
+𝛽𝛽𝐹𝐹8𝐶𝐶𝑎𝑎𝐶𝐶𝑠𝑠𝑀𝑀𝑎𝑎𝐶𝐶
(7)
The decision-making uni is composed by he head o he household uni , wi h and wi hou a pa ne . In he i s
case, he decision-making uni is made o wo pe sons who ake collec i e decisions abou hei pa icipa ion in
he labou ma ke and whe e he household head is de ined as he membe wi h highes labou ea nings5. In
he second case, he decision uni is he indi idual. Once he decision-making uni is iden i ied, indi iduals a e
selec ed acco ding o hei age – om 19 o 66 yea s old – so ha we build a sample o indi iduals whose
labou supply beha iou is endogenous. Complex in a-household ba gaining p ocesses a e no modelled.
Simila ly, he labou beha iou o s uden s, pensione s and people wi h disabili y is no modelled as hei choice
se should be expanded on o he decision dimensions, e.g., educa ion, pension o ea ly e i emen schemes.
The ax and bene i mic osimula ion model EUROMOD6 is used o cons uc he coun e ac ual budge cons ain
a each al e na i e o he choice se . EUROMOD is a complex calcula o ha simula es cash bene i en i lemen s,
di ec axes and social insu ance con ibu ions and, consequen ly, disposable incomes, o all EU coun ies based
on he in o ma ion a ailable in he unde lying mic o-da ase s and in line wi h he coun y ax-bene i ules.
Non-simula ed bene i s, like con ibu o y pensions, as well as ma ke incomes a e aken di ec ly om he inpu
da ase s. EUROMOD compu es he household disposable income as ollows. Fo each al e na i e in he choice
se , cha ac e ized by posi i e wo king hou s, a wage a e is needed o compu e labou income ea ned. As wage
in o ma ion is only a ailable o he wo king indi iduals, he hou ly wage a e has be es ima ed o he non-
wo king sample. The wage equa ion is speci ied as a loga i hmic unc ion o obse ed wage a es and depends
linea ly on a se o con en ional explana o y a iables such as educa ion, wo k expe ience, wo k expe ience
squa ed, educa ion le el and some egional dummies. To con ol o he possibili y o non- andom selec ion o
non-employed, EUROLAB model ollows he Dubin and McFadden (1984) app oach, which is based on wo
assump ions: (1) a linea ela ionship be ween he e o e ms in he wage selec ion equa ions, and (2) a
co ela ion equa ion be ween he wo e o e ms sum o ze o (see Na azani e al., 2023, o de ails on he
wage p edic ion p ocedu es applied by EUROLAB). In he case o he unemploymen al e na i e, unemploymen
bene i s a e simula ed acco ding o he ules applied in he coun y. Acco ding o he Po uguese law and
abs ac ing om addi ional eligibili y condi ions, he unemploymen bene i amoun s in gene al o 65% o he
mon hly wage ea ned in he p e ious yea . 7 In he case o he inac i i y al e na i e, he mon hly wage is se o
0 and alloca ed o he selec ed indi iduals. Once he (p edic ed) wage is se , EUROMOD conside s i oge he
wi h any o he sou ce o amily income and he cha ac e is ics o he whole ax and bene i sys em o de i e
he disposable income o he indi idual and he household unde each al e na i e, conside ing he household
cha ac e is ics.
Finally, he da a used bo h o es ima ing he u ili y unc ion pa ame e s, labou supply elas ici ies and unning
EUROMOD comes om he Eu opean Union Su ey on Income and Li ing Condi ions (EU-SILC), p oduced by
Eu os a . This is a ha monized da ase o c oss-sec ional and longi udinal da a, co e ing all EU coun ies. I is
an annual su ey ha collec s in o ma ion a he indi idual and a he household le el abou income sou ces -
wages, social con ibu ions, axes and pensions and o he social ans e s - and li ing condi ions. EU-SILC also
includes indi iduals’ demog aphic and socio-economic cha ac e is ics such as gende , age, ma i al s a us and
pa en hood, educa ion, labou ma ke s a us, among o he s. In his s udy, we use only he 2020 c oss-sec ional
e sion o his su ey o Po ugal (wi h he e e ence pe iod o income being 2019), consis ing o a
ep esen a i e sample o 27,638 indi iduals, co esponding o 11,367 households. Al hough he 2021 su ey
da a is al eady a ailable, i is a ec ed by he pandemic shock by ocusing on 2020 income.
5 In he case o equali y o ea nings, he age c i e ion is used.
6 EUROMOD e sion I4.62+, Janua y 2021.
7 See EUROMOD Coun y epo o Po ugal o a comple e desc ip ion o he unemploymen bene i simula ion o his
coun y.
13
4 Empi ical speci ica ion and es ima ion esul s
4.1 U ili y pa ame e s
A e unning EUROMOD and simula ing he budge cons ain s o each coun e ac ual choice se , EUROLAB
es ima es he pa ame e s cha ac e ising p e e ences o labou and income o h ee household ypes: couples,
single women, and single men8 as desc ibed in Sec ion 3. Household ype-speci ic u ili y es ima es a e epo ed
in Table 2 and a e sa is ac o y o e all in e ms o s a is ical and economic signi icance. U ili y pa ame e s wi h
espec o he a ailabili y o he a ious job oppo uni ies poin ou o a p onounced concen a ion a ound he
ull- ime hou s’ al e na i e, while he ake up o pa - ime jobs appea s insigni ican , which seems o be
e lec ing he Po uguese labou ma ke s uc u e and wo king- ime pa e ns shown in Sec ion 2. The
unemploymen op ion is no s a is ically signi ican , indica ing ha unemploymen is an i ele an al e na i e
among he choice se o indi iduals. Ne e heless, he inclusion o he unemploymen al e na i e dummy among
he explana o y a iables o he condi ional logi model is impo an o accoun o he weigh o his op ion.
P e e ence pa ame e s o he ma ginal u ili y o leisu e a e posi i e and declining wi h addi ional amoun s o
leisu e enjoyed, bo h o couples and singles. In addi ion, he u ili y pa ame e ela ed o he in e ac ion o
leisu e among pa ne s (“in couple” households) is also s a is ically signi ican and posi i e, indica ing ha
pa ne s p e e o spend leisu e ime oge he . This implies ha he labou supply e ec s o he iscal e o ms
o pa ne ed indi iduals a e a ec ed also by he indi ec o c oss e ec s o hei pa ne s. The o he pa ame e s
ela ed o he in e ac ions o leisu e and socio demog aphic cha ac e is ics (age, educa ion le el, coun y o
bi h, exis ence o a mo gage and li ing in he capi al) show di e en le els o signi icance among men and
women. I is in e es ing o no e ha he in e ac ion o leisu e wi h a iables cap u ing he numbe o child en
(younge han h ee yea s old esul and mo e han wo child en) is insigni ican , a inding ha indica es ha
he p esence o young child en doesn’ penalize he p e e ences o wo k among pa en s, no e en o mo he s.
This inding is co obo a ed by he high employmen a es (highe han 80%) among a he s, bu also mo he s,
in he p esence o child en, in Po ugal, which e eals a high p e e ence o wo k e en among mo he s wi h
mo e han 2 child en.9 I is in e es ing o no e ha he es ima ed pa ame e s do no suppo he e idence o
di e en p e e ences o wo k among na i es and mig an s. The e is e idence o a g ea e p e e ence o
wo king among mo gage holde s, which may indica e he impo ance o inancial cons ain s in de e mining
labou supply beha iou . Simila ly, indi iduals li ing in he capi al seem o ha e a highe p e e ence o wo k
and he di e ence is s a is ically signi ican o all decision-making uni s excep o single women.
Table 2: Condi ional logi es ima ion esul s
Couples
Single Women
Single Men
In-wo k dummy - Male
-9.327***
-7.563***
(-7.23)
(-5.02)
Pa - ime dummy - Male
0.827
0.462
(1.91)
(0.89)
Full- ime dummy - Male
2.058***
2.165***
(15.01)
(12.30)
O e - ime dummy - Male
0.278*
0.256
(2.12)
(1.56)
Unemploymen dummy - Male
-19.27
-19.34
(-0.03)
(-0.03)
In-wo k dummy - Female
-4.359***
-3.478***
(-7.99)
(-7.26)
Pa - ime dummy - Female
0.0545
0.129
(0.27)
(0.65)
Full- ime dummy - Female
2.072***
2.116***
8 No e ha dis inguishing o u he ypes o households, such as adul child li ing wi h pa en s, is desi able o a be e
iden i ica ion o he sample, as well as o pe o ming speci ic policy analysis. Howe e , he ep esen a i eness o addi ional
ypes o households is no adequa e in EU-SILC da a o pe o m such an analysis.
9 See Figu e A.1 in he Appendix.
14
(17.84)
(17.19)
O e - ime dummy - Female
-0.0988
-0.335*
(-0.73)
(-2.33)
Unemploymen dummy - Female
-19.23
-18.55
(-0.03)
(-0.04)
Leisu e - Male
0.251***
0.141*
(3.96)
(2.12)
Leisu e squa e - Male
-0.00366***
-0.00208*
(-5.09)
(-2.44)
Leisu e x age - Male
-0.00225
-0.00224*
(-1.53)
(-2.39)
Leisu e x age squa e - Male
0.0000367*
0.0000287**
(2.32)
(2.68)
Leisu e x #child en < 3 yea - Male
0.00792
-0.0162*
(1.58)
(-2.01)
Leisu e x #child en 2+ - Male
-0.00120
0.0147
(-0.14)
(1.24)
Leisu e x Mig an - Male
0.0208
-0.0133
(1.64)
(-1.04)
Leisu e x Li ing in Lisbon - Male
-0.0206***
-0.00990*
(-3.74)
(-2.16)
Leisu e x Mo gage - Male
-0.000450**
-0.000642***
(-2.88)
(-3.31)
Leisu e - Female
0.198***
0.163***
(4.50)
(4.12)
Leisu e squa e - Female
-0.00187***
-0.00121***
(-5.13)
(-3.56)
Leisu e x age - Female
-0.00221
-0.00332**
(-1.70)
(-3.05)
Leisu e x age squa e - Female
0.0000287*
0.0000423***
(2.03)
(3.53)
Leisu e x #child en < 3 yea - Female
0.00573
-0.00372
(1.29)
(-0.47)
Leisu e x #child en 2+ - Female
0.0124
0.00108
(1.61)
(0.08)
Leisu e x Mig an - Female
-0.00555
0.00361
(-0.47)
(0.31)
Leisu e x Li ing in Lisbon - Female
-0.0103*
0.00176
(-2.19)
(0.42)
Leisu e x Mo gage - Female
-0.000656***
-0.000698***
(-4.67)
(-4.07)
Leisu e Male x Leisu e Female
0.000278*
(2.43)
Ne income
0.0136***
0.0133***
0.00521**
(6.59)
(7.13)
(2.96)
Ne income squa e
-
0.00000213
**
-0.000000745
-0.000000268
(-3.03)
(-0.71)
(-0.27)
Ne income x household size
0.000315
0.0000846
0.00127***
(1.06)
(0.22)
(3.43)
Ne income x Leisu e - Male
0.0000384**
0.0000571***
(3.18)
(4.34)
Ne income x Leisu e - Female
-
0.00000132
0.0000218*
(-0.13)
(2.15)
Obse a ions
102636
13956
10722
ll
-4884.9
-2103.1
-1737.6
15
2_p
0.522
0.495
0.457
aic
9837.8
4242.1
3511.2
bic
10162.1
4377.9
3642.2
Sou ce: Own calcula ions based on EUROLAB. No es: s a is ics in pa en heses. * p < 0.05, ** p < 0.01, *** p <
0.001
4.2 Labou supply elas ici ies
Be o e p esen ing he beha iou al e ec s o he policy e o ms, we i s examine he labou supply elas ici ies.
These es ima es can p o ide aluable insigh s in o he po en ial epe cussions o iscal e o ms on labou
supply. They a e p esen ed o he en i e popula ion and ca ego ized based on key socio-demog aphic ac o s
such as gende , p esence o child en, ma i al s a us, age, educa ion le el, mig a ion s a us and income le el.
The p ocess o compu ing labou supply elas ici ies in ol es: i) inc easing g oss wages by 1%, ii) compu ing he
p obabili y o each choice and he esul ing new labou supply, and iii) a e aging ac oss he ele an sample.
Addi ionally, we calcula e labou supply elas ici ies a bo h he ex ensi e (weekly wo king hou s) and he
in ensi e ma gin (labou ma ke pa icipa ion). Selec ed esul s a e showcased in Figu es 6A and 6B10.
As depic ed in Figu e 6A, he o e all labou supply elas ici y es ima ed o he en i e popula ion is app oxima ely
0.25, indica ing ha a 1% inc ease in g oss wages would esul in a 0.25% inc ease in he o al labou supply.
We obse e a no ably highe esponsi eness among women compa ed o men, wi h alues o 0.28 and 0.22,
espec i ely, which is consis en wi h he ela ed labou supply li e a u e (see Blundell e al (2011) and, o
su eys, McClelland and Mok (2012) and Ba gain e al (2014)). The igu e also shows a ia ions in hese
elas ici ies based on age, educa ion le el and income le el. Younge , less educa ed, and low-income indi iduals
display highe elas ici ies, implying a g ea e likelihood o esponsi eness o policy e o ms a ec ing hei
disposable income. In e es ingly, an age p o ile o elas ici ies e eals a U-shaped pa e n. Singles exhibi highe
elas ici ies han pa ne ed indi iduals, and pa en s demons a e highe elas ici ies han hose wi hou child en.
Fu he mo e, he analysis exhibi dis inc ions be ween gende s and mig a ion s a us. In he case o men,
mig an s exhibi labou supply elas ici ies simila o na i es. Howe e , mig an women show lowe elas ici ies
compa ed o na i es.
Figu e 6B b eaks down he o e all labou supply elas ici y in o i s ex ensi e and in ensi e ma gins. No ably,
he e is a signi ican con as in he esponses o a wage inc ease conce ning pa icipa ion and hou s wo ked,
wi h he la e exhibi ing g ea e igidi y. Pa icula ly, single men display heigh ened eac i i y o changes in
g oss wages in he ex ensi e ma gin, whe eas he opposi e holds ue when conside ing hou s o wo k. In his
las scena io, single men exhibi he lowes elas ici y among he a ious gende and ma i al s a us combina ions
examined. In ac , i appea s, ha singles, in gene al, display g ea e elas ici y han couples, and women in
couples also appea o be mo e elas ic han men in simila si ua ions.
D awing a di ec compa ison be ween he elas ici ies p esen ed in his s udy and hose ound in he exis ing
li e a u e poses a challenge p ima ily owning o he limi ed numbe o publica ions ea u ing Po ugal.
Addi ionally, a ia ions in modelling amewo ks, he in luence o he ax-bene i sys em, and dispa i ies in
mic o da a can lead o signi ican di e ences in elas ici y alues. No ably, he elas ici ies epo ed in his pape ,
especially he ones on he ex ensi e ma gin, appea o be highe han hose documen ed in Ba gain e al.
(2014)11. This con as may a ise om a ia ions in es ima ion me hodology (including u ili y o m, wage
p edic ion me hod and he calcula ion o ou side op ions such as he unemploymen bene i ), he compu a ion
o hou ly wage and de ini ion o he ime uni . Fu he mo e, ou esea ch elies on one o he mos ecen SILC
wa es, in ended o cap u e he la es labou ma ke condi ions, while he labou supply elas ici ies epo ed by
Ba gain e al. (2014) o Po ugal a e de i ed om he 2001 Eu opean Communi y Household Panel.
10 See also Table A.1 in he Appendix.
11 See Table A.2 in he Appendix.
16
Figu e 6. Labou supply elas ici ies
Panel A: To al elas ici y by gende and indi idual
cha ac e is ics (%)
Panel B: In ensi e and ex ensi e ma gin, by gende
and ma i al s a us (%)
Sou ce. Own calcula ions based on EUROLAB.
17
5 Policy e o ms e ec s
In his sec ion, we examine he beha iou al and non-beha iou al impac s o he policy e o ms unde
conside a ion. We begin wi h he discussion o he non-beha iou al e ec s, o en e e ed o as he “nex
mo ning” o “day a e ” e o m e ec s. Following his, we del e in o he po en ial e ec on labou supply ac oss
a ious household ypes and income quin iles. Addi ionally, we add ess he employmen e ec s, aking in o
conside a ion he demand side o he labou ma ke .
5.1 Non beha iou al e ec s
The h ee simula ed e o ms a ge di e en income g oups (Figu e 7A). The ax schedule e o m p ima ily
ocuses on amilies loca ed in he second hal o he income dis ibu ion and i ep esen s nea ly a 1.3%
inc ease o he op decile. The minimum un axed income e o m, on he o he hand, a ge s he lowe o middle
segmen s o he income dis ibu ion, esul ing in a disposable income inc ease o be ween 0.3% and 0.5% up
o he se en h decile. The child bene i e o m leads o a 2.1% income ise in he i s decile, 1.1% in he second
and 0.7% in he hi d, ha ing negligible e ec s beyond ha . When conside ed collec i ely, hese e o ms
es ablish a p og essi e pa e n, as depic ed in Figu e 7B, wi h he i s decile eme ging as he p ima y
bene icia y. This is la gely a ibu ed o he ein o cemen o he child bene i , con ibu ing o a subs an ial 2.4%
inc ease in disposable income o he lowe income g oup, nea ly doubling he agg ega ed a e age inc ease
obse ed o e all.
Figu e 7: Impac o he iscal shocks on household disposable income by income deciles (%)
Panel A: Indi idual impac o he e o ms ac oss
deciles
Panel B: To al impac o he e o ms ac oss deciles
and o all he popula ion
Sou ce: Au ho s’ calcula ions based on EUROMOD simula ions and EU-SILC. No e: Decile g oups ank he indi iduals
acco ding o hei equi alised disposable income in he baseline scena io. Fo he compu a ion o he equi alised disposable
income, we ollow he OECD-modi ied scale, in which he i s adul is coun ed as 1, addi ional indi iduals aged 14 o abo e
0.5 and child en up o 14 yea s-old 0.3.
5.2 Beha iou al e ec s
The EUROLAB beha iou al model gene a es po en ial labou supply e ec s o he selec ed e o ms, as ou lined
in Table 3 and Figu e 9.
F om Table 3, he labou supply esponses, in he in ensi e and ex ensi e labou ma gins, ca ego ized by gende
and amily si ua ion, a e e iden o he di e en e o m scena ios. Conce ning he PIT schedule e o m, o e all
e ec s a e ela i ely modes , wi h a 0.18% inc ease in hou s wo ked and 0.10% inc ease in labou ma ke
18
pa icipa ion. Addi ionally, his e o m appea s o elici g ea e labou supply esponses om women in couples
and single a he s. The minimum un axed income e o m gene a es o e all negligible e ec s, wi h posi i e
impac s in some g oups compensa ing he nega i e e ec s in o he s. In his con ex , childless women in couples
a e mo e inclined o educe wo king hou s, while single women wi hou child en show a willingness o inc ease
hem. This pa e n is mi o ed in he beha iou o men bu a a lesse ex en . Con e sely, he ein o cemen o
he child bene i is expec ed o dec ease labou pa icipa ion and o al wo king hou s by 0.20% and 0.17%.
Unsu p isingly, his e o m has nil (o i ually nil) e ec s on hose indi iduals wi hou child en. Howe e , i
p oduces s onge nega i e e ec s on single pa en s, o whom he s eng hening o he bene i would make
wo king less a ac i e. Al hough lowe , i also has an impo an nega i e e ec on he labou supply o pa en s
in couples. Means- es ing child bene i s ha phase ou when amily income exceeds an income h eshold aise
he ma ginal ax a e, in pa icula o seconda y ea ne s, and c ea e highe labou disincen i es o hose who
belong o hese amilies. In ac , as Figu e 9 shows, he wo k disincen i es e ec s o he child bene i e o m,
al hough ele an o bo h men and women, a e s onge o he i s wo quin iles o he income dis ibu ion,
mo e likely o ha e a amily income close o he wi hd awal h eshold.
Table 3: Labou supply changes in he in ensi e and ex ensi e ma gins, by gende and household ype, all popula ion
Sou ce: Own calcula ions based on EUROLAB. No e: Child en a e de ined as son-daugh e o he decision-making
uni . They a e no olde han 18 yea s, o i olde , in educa ion. Inac i i y includes bo h olun a y and in olun a y
unemploymen .
Figu e 8 illus a es he labou supply e ec s o men and women ac oss income quin iles. The esul s align wi h
he in ended a ge popula ion o he e o ms. The e o m on he PIT schedule demons a es posi i e e ec s
on labou supply h oughou he disposable income dis ibu ion, pa icula ly p onounced in he middle-income
ange. Rega ding he minimum un axed income e o m, he posi i e labou supply e ec s diminish wi h highe
income up o he hi d quin ile and hen (sligh ly) inc ease again, exhibi ing a U-shape pa e n, wi h women
expe iencing a s onge posi i e e ec (0.23% in hou s wo ked and 0.17% on pa icipa ion in he i s quin ile).
The child bene i e o m is expec ed o gene a e labou disincen i es, pa icula ly o households in he i s
quin ile (a ound 0.7% in hou s wo ked o men and women), diminishing as income ises. I is no ewo hy ha
Baseline
% change a e
PIT schedule
e o m
% change a e
minimum un axed
income e o m
% change a e
child bene i
e o m
% change a e
all e o ms
Hou s o wo k
Men In couple - wi h child en 39.92 0.16% -0.02% -0.26% -0.11%
In couple - wi hou child en 37.68 0.15% -0.11% 0.00% 0.04%
Single - wi h child en 37.55 0.26% 0.24% -0.42% 0.07%
Single - wi hou child en 34.59 0.14% 0.23% -0.03% 0.33%
To al 37.66 0.15% 0.03% -0.18% -0.01%
Women In couple - wi h child en 35.01 0.26% -0.02% -0.34% -0.10%
In couple - wi hou child en 34.02 0.23% -0.31% 0.00% -0.06%
Single - wi h child en 34.78 0.17% 0.07% -0.40% -0.16%
Single - wi hou child en 33.43 0.16% 0.34% -0.01% 0.47%
To al 34.14 0.22% -0.01% -0.22% 0.00%
All To al 35.85 0.18% 0.01% -0.20% -0.01%
Pa icipa ion
Men In couple - wi h child en 0.94 0.07% -0.01% -0.23% -0.17%
In couple - wi hou child en 0.90 0.07% -0.11% 0.00% -0.03%
Single - wi h child en 0.89 0.17% 0.26% -0.36% 0.06%
Single - wi hou child en 0.83 0.08% 0.25% -0.02% 0.29%
To al 0.90 0.07% 0.04% -0.17% -0.06%
Women In couple - wi h child en 0.89 0.17% -0.02% -0.29% -0.14%
In couple - wi hou child en 0.87 0.16% -0.30% 0.00% -0.12%
Single - wi h child en 0.88 0.07% 0.07% -0.31% -0.17%
Single - wi hou child en 0.86 0.07% 0.31% -0.01% 0.35%
To al 0.87 0.13% -0.01% -0.18% -0.06%
All To al 0.88 0.10% 0.01% -0.17% -0.06%
19
he policy e o ms a e expec ed o induce labou disincen i es in he lowe income ange p ima ily due o he
impac o he child bene i e o m. Con e sely, hese e o ms a e p edic ed o gene a e posi i e labou
esponses, p ima ily in luenced by he PIT e o m, which enhances he disposable income. The combined e ec
o he h ee e o ms is ne e heless modes , gene a ing a d op in hou s wo k and pa icipa ion o less han
0.5% o he g oups mo e a ec ed by he disincen i es p oduced by some o he measu es ( he low-income
amilies).
Figu e 8: Labou supply changes in he in ensi e and ex ensi e ma gins, by gende and income quin iles
Sou ce: Own calcula ions based on EUROLAB. No e: Child en a e de ined as son-daugh e o he decision-making uni . They
a e no olde han 18 yea s, o i olde , in educa ion. Income quin iles a e cons uc ed based on equi alized disposable
income unde he p e- e o m sys em.
Mo eo e , we assess he ou comes o he e o ms by employing a social wel a e c i e ion ha assigns equal
wel a e weigh s o households ega dless o hei income s a us. The indings, as p esen ed in Table 4, indica e
ha all he e o ms a e expec ed o esul in a modes inc ease in social wel a e, p ima ily a ibu able o hei
capaci y o educe inequali y and enhance o e all income. Al oge he , he e o ms p oduce a ound 90% o
winne s, meaning ha almos all indi iduals expe ience an inc ease in hei disposable income, wi h a ma ginal
cos o public unds close o ze o.
20
Table 4: Wel a e and e iciency indica o s
Sou ce: Own calcula ions based on EUROLAB. No es: Social Wel a e is compu ed as he p oduc o he a e age disposable
income o all households and he Gini index; he Gini index is compu ed on he equi alized disposable income; he ma ginal
cos o public unds is calcula ed as 1 minus he a io be ween he change in ne e enues wi h beha iou al e ec on he
change in ne e enues wi hou beha iou ; he winne s is he sha e o he sample expe ience an inc ease in he equi alized
disposable income due o he e o m.
5.3 Employmen e ec s
As e e ed in he me hodological sec ion, EUROLAB is also able o p ojec po en ial changes in employmen ,
inac i i y and unemploymen by conside ing he demand side o he labou ma ke . We p esen he esul s o
his analysis in Table 5. Assuming a labou demand elas ici y o -0.5, we de e mine he alue o he change in
a e age wage – pa ame e , Sec ion 4 – ha aligns wi h a new labou ma ke equilib ium s a us ollowing he
e o m.12 The PIT e o m is expec ed o shi he desi ed labou supply cu e o he igh , esul ing in a 0.24%
inc ease in o al employmen . Howe e , o ensu e consis ency be ween he a ailable jobs and he desi ed labou
supply h ough adjus men along he demand cu e and wage a e, wage dec eases 0.3% he inal employmen
inc ease is dampened o 0.16%. Inac i i y is expec ed o dec ease by 0.46% and unemploymen is expec ed o
d op by 0.66%, in equilib ium. Con e sely, he e o m ela ed o child bene i is expec ed o educe labou supply
by 0.42%, shi ing he labou supply cu e o he le . A new labou ma ke equilib ium is es ablished, esul ing
in a 0.56% inc ease in he wage a e and a less subs an ial decline in employmen o 0.28%. The employmen
e ec s associa ed wi h he minimum un axed income e o m a e es ima ed o be gene ally minimal, mi o ing
he small change in labou supply.
Table 5: Changes in employmen , inac i i y and unemploymen , in equilib ium
Sou ce: Own calcula ions based on EUROLAB. No es: Only he indi iduals in he beha iou al sample a e conside ed in hese
calcula ions.
12 See Na azani and Colombino (2021) o de ails on he op imiza ion p ocedu e used.
Baseline
PIT schedule
e o m
Minium un axed
income e o m
Child bene i
e o m
All he e o ms
Social Wel a e 790 795 792 793 801
Gini index 0.298 0.300 0.297 0.296 0.297
Ma ginal Cos o Public Funds 0.11 -0.03 -0.27 0.01
Winne s 0.70 0.24 0.22 0.88
Employmen Inac i i y Unemploymen Wage % change
Baseline 3004003 371412 477302
% change a e PIT schedule e o m
No equilib ium 0.24% -0.73% -0.13%
Equilib ium 0.16% -0.46% -0.66% -0.3
% change a e minimum un axed income e o m
No equilib ium 0.04% -0.11% -0.13%
Equilib ium 0.02% -0.07% -0.09% 0.0
% change a e child bene i e o m
No equilib ium -0.42% 1.39% 1.54%
Equilib ium -0.28% 0.92% 1.05% 0.6
% change a e all e o ms
No equilib ium -0.14% 0.53% 0.45%
Equilib ium -0.09% 0.38% 0.29% 0.2
21
6 Conclusions
This pape examines he e ec s o ecen ax and bene i e o ms in Po ugal on labou supply. The s udy used
a disc e e labou supply model, EUROLAB, and da a om he EU-SILC o es ima e labou supply elas ici ies and
he EUROMOD mic osimula ion model o quan i y he di ec e ec s o he policy changes.
The esul s show ha labou supply elas ici ies in Po ugal a e ela i ely small, highe o emales han males,
and especially igid in he in ensi e ma gin. This e lec s he speci ici ies o he Po uguese labou ma ke ,
cha ac e ized by high pa icipa ion (including emale pa icipa ion) and low p e alence o pa ime jobs in he
Eu opean con ex . The s udy also inds ha lowe labou supply elas ici ies do no educe he impo ance o
conside ing he e ec s o iscal e o ms on he labou ma ke , as e en small e o ms migh ha e a ele an
impac on he ou comes o speci ic segmen s o he popula ion. While he highe labou supply o women
seems o be in line wi h he ela ed li e a u e, he o e all mo e elas ic supply o labou a he ex ensi e ma gin,
when compa ed wi h Ba gain e al. (2014), may esul om some limi a ion in he simula ion o he ou side
op ion o unemploymen (ei he because o he educed numbe o unemployed in he beha iou sample o due
o he compu a ion o he unemploymen subsidy i sel ). In u he analysis, we plan o imp o e he simula ion
o he coun e ac ual unemploymen al e na i e, by using a mo e sophis ica ed ool o ansi indi iduals om
employmen o unemploymen .
The s udy also inds ha ecen changes o he PIT ax schedule in Po ugal a e eg essi e, while he ones
a ec ing he minimum un axed income ha e a la e p o ile. On he con a y, he child bene i e o m has a
p og essi e na u e. Labou supply esponses o hese policy changes a e o e all o small magni ude. As
expec ed, hou s o wo k and pa icipa ion a e a ec ed posi i ely by he ax schedule e o m and nega i ely by
he child bene i ein o cemen . These nega i e labou supply e ec s o he child bene i e o m a e, howe e ,
concen a ed on ce ain g oups, being highe o single pa en s o o hose in he bo om hal o he income
dis ibu ion. Knowing he g oups mos a isk o lea ing he labou ma ke migh be use ul o policy make s o
design a ge ed ac i e labou ma ke policies o mi iga e hese impac s. Ne e heless, all he e o ms a e
assessed as social wel a e inc easing.
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