Welfare Dependence and Self-Control: An Empirical Analysis

Abstract

Ahyperbolic discounting model of labour supply and welfare participation with heterogeneous time preference parameters is estimated. Exclusion restrictions are constructed from variations in behaviour induced by time limits in a welfare reform experiment.We find that most individuals are time-inconsistent, and they exhibit varying degrees of present bias and perception of the commitment problem. Introducing a welfare component to the tax system can make individuals worse off by aggravating the commitment problem. Certain dynamic policy interventions carry sizeable commitment-related work incentives; for instance, a dynamic sanction triggered by past employment can be preferred by some indivi..