PL EN
RESEARCH PAPER
Crowding Out of Informal Economy Labour Supply by Unconditional Child Benefits
 
More details
Hide details
1
Department of Economics I, SGH Warsaw School of Economics, Poland
 
 
Submission date: 2021-06-28
 
 
Final revision date: 2021-11-16
 
 
Acceptance date: 2021-11-23
 
 
Publication date: 2022-03-31
 
 
Corresponding author
Janusz Jabłonowski   

Kolegium Analiz Ekonomicznych, Szkoła Główna Handlowa w Warszawie, Polska
 
 
GNPJE 2022;309(1):31-43
 
KEYWORDS
JEL CLASSIFICATION CODES
ABSTRACT
The article proposes a modified version of a theoretical model that crowds out less educated workforce from the informal economy in response to a shock in government transfers. The negative impact of universal child benefits (UCB) is measured by the outflow of labour from the informal economy in Poland. After it was introduced in the country in 2016, the “Family 500+” child benefit programme probably caused a permanent outflow of some 160,000 jobs from the labour market. The study verifies this assumption with a real business cycle (RBC) model, with two types of households responding to a positive shock resulting from government transfers. The endogenous growth factor in the model results from the rate of return on higher education and lifelong learning. The model describes the statistical aggregates of the Polish economy. A Bayesian estimation shows an acceptable fit to the time series, which allows for wider use of the fiscal impulse resulting in a decline in the economic activity of beneficiaries. The study adds to a debate on the margins of government intervention in the economy, which at some point may displace less educated workers in the shadow economy.
 
REFERENCES (24)
1.
Aiyagari S. R., Christiano L. J., Eichenbaum M. [1992], The output, employment, and interest rate effects of government consumption, Journal of Monetary Economics, 30 (1): 73–86.
 
2.
Baxter M., R. G. King [1993], Fiscal Policy in General Equilibrium, American Economic Review, 83: 315–334.
 
3.
Blanchard O., Perotti R. [2002], An empirical characterization of the dynamic effects of changes in government spending and taxes on output, Quarterly Journal of Economics, 117: 1329–1368.
 
4.
Burdett K., Carrillo-Tudela C., Coles M. [2011], Human Capital Accumulation and Labor Market Equilibrium, International Economic Review, 52 (3): 657–677.
 
5.
Hernandez-Aleman A., Leon C. J., Marquez-Ramoz L. [2017], The Effect of the Universal Child Care Cash Benefit on Female Labor Supply in Spain, Estudios De Econom´Ia Aplicada, 35 (3): 801–818.
 
6.
HFCS [2015], European Central Bank (ECB), The Household Finance and Consumption Survey (HFCS): Results from the Second Wave, Statistics Paper Series, 2014.
 
7.
Farmer R. E., Plotnikov D. [2012], Does fiscal policy matter? Blinder and Solow revisited, Macroeconomic Dynamics, 16: 146–166.
 
8.
Ferragina E. [2017], Does Family Policy Influence Women’s Employment? Reviewing the Evidence in the Field, Political Studies Review, Wiley, hal-01647927.
 
9.
Galí J., López-Salido D., Vallés J. [2007], Understanding the Effects of Government Spending on Consumption, Journal of the European Economic Association, 5: 227–270.
 
10.
Gonzales L. [2011], The Effects of a Universal Child Benefit, Barcelona GSE Working Paper Series, 574.
 
11.
Jabłonowski J. [2018], Implications of Transitory and Permanent Changes in Tax Rates for Poland, Gospodarka Narodowa, 2 (294): 73–97.
 
12.
Kolasa M. [2009], Structural heterogeneity or asymmetric shocks? Poland and the euro area through the lens of a two-country DSGE model, Narodowy Bank Polski Working Papers, 49.
 
13.
Kwan Y. [2006], The Direct Substitution Between Government and Private Consumption in East Asia, NBER WP, 12431.
 
14.
Magda I., Kiełczewska A., Brandt N. [2018], The Effects of Large Universal Child Benefits on Female Labor Supply, IZA DP, 11652.
 
15.
Mayer E., Moyen S., Stahler N. [2010], Government Expenditures and Unemployment: A DSGE Perspective, Discussion Paper/Deutsche Bundesbank/Series 1, Economic Studies, 18, Frankfurt.
 
16.
Mincer J. [1958], Investment in human capital and personal income distribution, Journal of Political Economy, 66 (4).
 
17.
Naz G. [2004], The impact of cash-benefit reform on parents’ labor force participation, Journal of Population Economics, 17: 369–383.
 
18.
Ohanian L., Raffo A., Rogerson R. [2008], Long-term changes in labor supply and taxes: Evidence from OECD countries, 1956–2004, Journal of Monetary Economics, 55: 1353–1362.
 
19.
Podemski K. [2016], gEcon estimation package, Chancellery of the Prime Minister of the Republic of Poland, 2014–2015, Karol Podemski 2015–2016.
 
20.
Schirle T. [2015], The effect of universal child benefits on labor supply, Revue Canadienne d’economique, 48 (2).
 
21.
Szabo-Morvai A. [2014], Who Benefits from Child Benefits? The Labor Supply Effects of Maternal Cash Benefit, work in progress.
 
22.
Trabandt M., Uhlig H. [2011], How far are we from the slippery slope? The Laffer curve revisited, NBER Working Paper, 15343.
 
23.
Waters T. [2018], Taxes, benefits, and labor supply, Occasional presentation by Institute of Fiscal Studies, available as of December 2020.
 
24.
Weber S. [2008], Human capital depreciation and education level, International Journal of Manpower, 53 (5): 613–642.
 
eISSN:2300-5238
Journals System - logo
Scroll to top