chapter  2
51 Pages

Case Studies of Labour Supply Incentives and Budget Lines

WithDon M. Egginton

This chapter describes the components of the tax and social security system. It analyses the budget constraints under varying assumptions about wage rates, family composition, housing costs, housing tenure and housing cost distribution. The chapter demonstrates how the various components of the social security system influence an individual’s budget constraint. It discusses a general knowledge about the shape of the budget constraints. The chapter outlines the salient features of the social security system in so far as they are relevant to the building of the model. Child Benefit (CB) will alter the shape of the budget constraint because it counts as income for the purpose of calculating Supplementary Benefit and Housing Benefits. CB is payable weekly to each family with eligible children regardless of the number of hours worked or the level of earnings. The chapter shows that the workings of the social security and tax system in so far as they affect labour supply incentives.