In a world where machines replace unskilled work, an active labor market policy - represented by the combination of an optimal Earned Income Tax Credit (EITC) and income maintenance for the unemployed - provides incentives to increase participation in the labor market and depresses wages for unskilled employees. In this paper, this policy is tested against the alternative of allowing unskilled workers to receive a means-tested basic income (MTBI), as recently adopted by Spain. For a liberal social planner (i.e., includes consumption and leisure in individual utility), the MTBI dominates the active labor market policy. For a conservative social planner (i.e., evaluates social welfare based on individual utility from consumption), the active labor market policy dominates the MTBI. The potential dynamic effects of active labor policy on labor supply were considered in a simulation by using updated empirical estimates; it shows that this policy becomes preferable for both types of social planner.

BACKGROUND: The UN Convention on the Rights of Persons with Disabilities (CRPD) assumes that persons with disabilities have similar rights, motivations to work and personal values as those without a disability.

OBJECTIVE: The article examines the corroboration between this assumption and real-life facts to better understand the importance of labor-oriented values in people with disabilities

METHODS: We tested the relationship between human values, employment and wages among Israelis with disabilities who cope with prejudice, negative attitudes and a lack of accessible workplaces in comparison to Israelis without a disability.

RESULTS: We found that the effect of labor-oriented values on employment status is 70% higher among people with disabilities than among those without a disability. Furthermore, persons with disabilities ranked power and achievement as important values related to employment, but these values were not included in the considerations of persons without a disability.

CONCLUSIONS: These results highlight the importance of labor-oriented values for people with disabilities to overcome challenges in the labor market. Our findings suggest that rehabilitation policies would benefit from identifying the human value of people with disabilities at an early stage of their career.

In this paper we check the main traditional suspects for explaining growth of GDP per-employee using a panel analysis of forty-one developed and developing countries in the period 1970-2010. While well-known explanations like cultural, geographical, institutional and government policy were found significant, we show that higher education is the single crucial factor for explaining long-term GDP per-employee. According to our analysis the reform implemented by Asian Tigers, which implied a transition from primary and secondary education to an increased share of tertiary education among the working population, allowed these countries to reach the level that prevails in developed economies. In contrast, Latin American countries that did not pursue higher education reform, did not achieve sizable growth. Our specification shows that increasing the share of higher education in the working population results in marginal decreasing returns though positive.

While business cycles are crucial for determining the dynamics of government budget deficits, it is rare to find an analysis of optimal fiscal rules that are designed to cope with the asymmetric behavior of fiscal variables during the cycle. In this paper I characterize the dynamics of budget deficits along the cycle: i) in recessions marginal propensity to spend is higher than the coefficient of marginal tax revenues, causing an increase of the deficit over GDP; ii) in expansions tax revenues soar allowing for a deficit reduction; however, marginal spending is still high and consequently a full cycle implies an increase in the deficit. Then, I present a model in which fiscal rules are designed to cope with a political bias that is based on two components: the cyclical bias and discretionary tax reductions. According to my analysis, the new generation fiscal rules should be based on a combination of expenditure and revenue rules, which are newer than budget deficit rules and are becoming widespread. According to my empirically calibrated simulation, this combination of rules succeeds on avoiding the political bias and is more cycle-friendly than a budget deficit rule.

While the cost estimates of reminders by mail are readily available for policy-makers, the estimation of their benefit requires thoughtful analysis. For this purpose, we used data about Earned Income Tax Credit (EITC) reminders by mail which the Israel Tax Authority sent to eligible applicants during the period of 2008-2011. Using a framework of repeated letters, we were able to identify those who applied for the EITC in response to such a reminder. In the framework of dynamic analysis of learning, we estimated the persuasive role of receiving reminders – which prompts an increased uptake – at 1.5 percent. Using independently -performed questionnaires, we characterised the ‘letter–dependent’ population, defined as those who depended on receiving reminders for requesting the EITC transfer. We found that these applicants were older; they received a lower transfer, they had a fair level of knowledge of the programme and they did not actively seek out information about the amount of the expected transfer.

This paper examines the policy option of providing government assistance to families with young children and financing it by increasing income taxes when the children leave home and the parents' wages rise due to their tenure in the labor market. We examine the expenditure composition and the characteristics of labor market participation of parents of young children in Israel, and find that these families have higher expenditures than other families, and that their income in the years in which children are present in the household is lower than in the following years. We do not find evidence that the relative position of young families deteriorated during the last decade, except for the housing market where we identify a consistently rising share of these families residing in rented rather than self-owned dwellings; such a trend did not develop among other family types. We also show that parents of young children are characterized by high employment rates and persistent employment. A comparison of government support for young families in other OECD countries with those in Israel for 14 representative family types—characterized by their structure and income composition—shows that it is higher in these countries for all of these family types. A simulation of raising the average benefits for young families in Israel to the level common in other OECD countries, while raising income tax rates at older ages in a way that keeps the policy fiscally balanced – and the individuals' lifetime income level unchanged – indicates that welfare can be increased substantially via consumption smoothing over the families' life cycle.

This paper provides an example aimed at calculating the optimal inheritance tax in a model in which inheritances are used to finance investment in education. Two results are obtained: 1) The optimal inheritance tax schedule includes a threshold, estimated  between 2.5 and 5.5 times per-capita GDP. This result holds for a Rawlsian social planner that maximizes the welfare of the poorest individual, who does not leave bequests. 2) Contrary to the  result of a 100 percent tax on pure accidental bequests, the optimal simulated tax rates are  between 28 percent, for the case of educational bequests, and 57 percent, for the case where educational and accidental bequests interact.  This range is in line with existing schedules in developed economies.