Take–up of Means–tested Benefits and Labour Supply

This paper examines take–up rates in a model in which there is a fixed non–refundable cost of applying for benefits. The model involves a joint decision regarding both labour supply and the take–up of the benefit. There is a single means–tested benefit involving a 'taper rate' at which benefits are withdrawn as earnings increase. It is found that take–up increases as the level of the taper rate increases, and the value of benefits increases. The achievement of 100% take–up is associated with labour supply responses whereby there are few, if any, individuals who are both working and eligible for benefits. The results have implications for the effects of lowering the taper rate on the costs and effective targeting of benefits.