Labour supply project: Model application - employment effects of reforms between 1997 - 2002

This briefing note presents results from an application of the IFS dynamic labour supply model developed for the HMT and the DWP. The reports from the project (Reports 1-3) presented the background to the final model, its components and the methods of estimation used. In Report 3 we presented the estimated model and results of applying the model to simulate labour market behaviour following a 2p cut in the basic rate of income tax.

Below, we model the overall effect of a package of tax and benefit reforms: the reforms introduced between 1997 and 2002, i.e. in the first six years of the Labour government. The reforms we model include all the major changes directly affecting the disposable incomes of households.

Section 2 of this briefing note introduces the changes to the tax and benefit system between 1997 and 2002 which we model in the simulation. Results of the simulation are presented in section 3. Section 4 concludes.