The welfare dependence in the Czech Republic
| Authors | |
|---|---|
| Year of publication | 2014 |
| Type | Article in Proceedings |
| Conference | Proceedings of the 19th International Conference – Theoretical and Practical Aspects of Public Finance 2014 |
| MU Faculty or unit | |
| Citation | |
| Field | Economy |
| Keywords | welfare trap; net replacement rate; work incentives |
| Description | The interaction of tax and social security systems defines the disposable income of individual and therefore influences the decision of unemployed to accept a job. The central argument of the paper is that income available from social welfare system in the Czech Republic is overly generous for some groups and leads to the long-term unemployment. Work incentives are most weakened through the withdrawal of means-tested benefits and tax credits, while high rates of income tax play a minor role. The policy reform of social system is needed to balance redistributive aims with work incentives and refocus incentives towards transition to work. This can be achieved with (i) the increase of the statutory minimum wage; (ii) the decrease of marginal tax rate for low-income earners; (iii) the phasing out of social benefits for some period instead of the sharp withdrawal of benefits. Ultimately a better harmonization of tax and social security systems in the direction of fewer social welfare programs and lower marginal tax rates will ensure that the incentives to leave unemployment are not hampered by high social benefits. |
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