When Income Effects are Large: Labor Supply Responses and the Value of Welfare Transfers

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IZA Seminar

Place: Schaumburg-Lippe-Str. 9, 53113 Bonn

Date: 01.10.2019, 12:15 - 13:30


Presentation by 

Giulia Giupponi (Institute for Fiscal Studies, London)


I estimate the long-run income effect of welfare transfers on individual labor supply. Using Italian administrative data on the universe of survivor insurance recipients, I implement a regression discontinuity design around a change in survivor insurance generosity based on the spouse's death date. I find that survivors fully offset the benefit loss with increases in earnings. Labor force participation and program substitution are the main margins of adjustment. I consider potential explanations for the large income effect. I demonstrate that large participation responses to realized benefit drops are revealing of large valuations of welfare transfers in the widowhood state.

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