Estimating the Impact of the Families Package Changes in Financial Incentives

Motu Working Paper 22-06

69 Pages Posted: 21 Sep 2023

See all articles by Lynn Riggs

Lynn Riggs

Motu Economic and Public Policy Research Trust

Dean Hyslop

Motu Economic and Public Policy Research

David C. Maré

Motu Economic and Public Policy Research Trust; University of Waikato - Economics

Date Written: December 2, 2022

Abstract

In this paper we analyse behavioural responses to changes in financial incentives associated with the 2018 Families Package. For this analysis, we followed the methods pioneered by Saez (2010)= and Chetty et al. (2013), which use bunching around kink points in the income schedule to estimate the degree of behavioural response. In general, the role of financial incentives in labour supply behaviour has been the subject of investigation for many decades, and although there is considerable concern about adverse labour supply responses to increased generosity of benefits, the available evidence on labour supply responses is mixed and surprisingly muted. We find no evidence of response around the salient kink points related to the policy changes; however, in contrast to the lack of bunching around the policy points, we see clear evidence of bunching around the top two marginal tax rate (MTR) thresholds, as well as at twice these amounts by coupled parental units. This suggests the methodology is able to identify such behavioural responses if they exist. Moreover, according to the theoretical model established in Saez (2010), the degree of bunching around the MTR thresholds should be similar if not less than that around the Families Package policy points we examine. The results in that respect are surprising, though Saez (2010), Chetty et al. (2013), and others find that bunching tends to occur around high visibility, easily understood kink points which have large impacts on disposable income.

Keywords: Financial incentives, income support policies, Families Package, New Zealand

JEL Classification: H24, H31, H53, I38

Suggested Citation

Riggs, Lynn and Hyslop, Dean R. and Maré, David C., Estimating the Impact of the Families Package Changes in Financial Incentives (December 2, 2022). Motu Working Paper 22-06, Available at SSRN: https://ssrn.com/abstract=4434485 or http://dx.doi.org/10.2139/ssrn.4434485

Lynn Riggs (Contact Author)

Motu Economic and Public Policy Research Trust ( email )

Level 1, 93 Cuba Street
P.O. Box 24390
Wellington, 6142
New Zealand

Dean R. Hyslop

Motu Economic and Public Policy Research ( email )

Level 1, 93 Cuba Street
P.O. Box 24390
Wellington, 6142
New Zealand

David C. Maré

Motu Economic and Public Policy Research Trust ( email )

PO Box 24390
Wellington, 6021
New Zealand
64-4-9394250 (Phone)

HOME PAGE: http://www.motu.org.nz

University of Waikato - Economics

New Zealand

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