Tax Reform, Subsidies, and Labor Supply: Lessons from Türkiye
IMF Working Papers, September 19, 2025
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- Tax Reform, Subsidies, and Labor Supply: Lessons from Türkiye
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Bibliographic details
- Authors: Silvia Domit, Yomna Gaafar, Duncan MacDonald, Carolina Osorio-Buitron
- Published: September 19, 2025
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229025591.001
Overview
- Paper examines two fiscal-policy channels affecting Türkiye’s labor force participation (LFP):
- Estimation of the impact of Türkiye’s 2022 Minimum Living Allowance reform, which removed tax disadvantages faced by secondary earners.
- Simulation of the impact of conditional subsidies on Türkiye’s LFP.
- Analysis based on four empirical models estimated for Türkiye using labor force survey micro data.
Methods
- Four empirical models estimated using labor force survey micro data for Türkiye.
- Two-pronged approach:
- Quasi-experimental estimation of the 2022 Minimum Living Allowance reform’s impact on labor supply of primary and secondary earners.
- Policy simulation of conditional childcare subsidies and comparison with direct transfers.
Key Findings
- Reform effects:
- Turkish secondary earners increased their labor supply by more than primary earners following the removal of tax disadvantages in the 2022 reform.
- Subsidy simulations:
- Conditional childcare subsidies lead to a large increase in LFP at relatively low fiscal costs.
- Conditional subsidies can achieve better labor market outcomes and further reduce fiscal costs compared to direct transfers.
Policy Implications and Recommendations
- Removing tax disadvantages for secondary earners can raise labor supply, with larger responses among secondary earners than primary earners.
- Implementing conditional childcare subsidies is an effective policy lever to raise women’s LFP:
- Conditional subsidies generate large LFP gains at relatively low fiscal cost.
- Conditional subsidies outperform unconditional direct transfers on labor market outcomes and fiscal efficiency.
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- Working Paper