From Welfare to Work: Evaluating a Tax and Benefit Reform Targeted at Single Mothers in Sweden

In this paper we evaluate a hypothetical tax and benefit reform to increase the working hours and to decrease welfare participation of single mothers in Sweden. We formulate and estimate simultaneously a structural static model of labor supply and welfare participation. The results suggest that labor supply among single mother households in Sweden is quite elastic, and that there is self-selection into welfare. We also find that the proposed reform would generate welfare gains for virtually everyone in the sample, benefit low-income households, and would at the same time generate a small revenue surplus.