Peter Spittal - Website
Labour Economics, Public Economics, Applied Microeconometrics
Paper title - 'Benefit Salience and Labour Supply'
Abstract - I study the salience of rules generating predictable changes in benefit entitlement. I estimate labour supply responses to a large and foreseeable reduction in benefit income arising from children ageing out of eligibility for Child Tax Credit, a major welfare programme in the UK. I show that the rules governing eligibility are non-salient, despite the high financial stakes, and that claimants learn through experience. I then develop a structural life-cycle labour supply model in which individuals may be unaware of the benefit eligibility rules, using the empirical results to identify key parameters in the model. The model estimates suggest that nearly 82 percent of claimants are initially unaware of the benefit eligibility rules, and that the resulting optimisation errors have substantial welfare costs -- equivalent to a 14 percent reduction in lifetime income from the benefit, with no offsetting benefits to the government. The findings identify a new source of inefficiency in the welfare system, and highlight the importance of recognising that dynamic features of policy may be non-salient.
- Professor Eric French
- Professor Jan Eeckhout
- Professor Fabien Postel-Vinay
- Dr Attila Lindner