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CEP discussion paper
When income effects are large: labor supply responses and the value of welfare transfers
Giulia Giupponi
October 2019
Paper No' CEPDP1651:
Full Paper (pdf)

JEL Classification: H55; I38; J22

Tags: income effect; labor supply; valuation of welfare transfers

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. Evidence suggests that the value of additional income in the widowhood state is large, driving large participation responses to survivor benefit cuts.