Monetary work-incentives within the Austrian tax and benefit system

Abstract

This paper analyses incentives to take up work or to increase working hours within the Austrian tax and benefit system. We analyze the monetary work incentives for a variety of family constellations (singles, single parents, families with children) with different incomes from dependent employment, when receiving unemployment benefits, and in the system of means-tested minimum income. Moreover, the effect of different earning ceilings (childcare and unemployment) and childcare costs is additionally investigated. Insufficient and, therefore, privately provided childcare is viewed as a missing component of the benefit system. The Austrian tax and benefit system is designed to be incentive-compatible for singles. Only marginal employment without deductions in the event of unemployment creates a negative incentive to expand employment beyond this extent. However, raising children creates negative monetary incentives. On the one hand, through the upper limits on additional earnings during times of childcare allowance, but especially when childcare costs arise.