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The labour market impact of the working families’ tax credit

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Author Info

  • Richard Blundell

    ()
    (Institute for Fiscal Studies and University College London)

  • Alan Duncan

    ()
    (Institute for Fiscal Studies and University of Nottingham)

  • Julian McCrae

    (Institute for Fiscal Studies)

  • Costas Meghir

    ()
    (Institute for Fiscal Studies and University College London)

Abstract

In October 1999, the working families’ tax credit (WFTC) replaced family credit as the main package of in-work support for families with children. Among a range of stated aims, the WFTC is intended to ‘... improve work incentives, encouraging people without work to move into employment’. In this paper, we consider the impact of WFTC on hours and participation. To simulate labour supply responses, we use a discrete behavioural model of household labour supply with controls for fixed and childcare costs, and unobserved heterogeneity. In simulation, we experiment with a number of scenarios regarding the take-up of the credit, entry wage level and hourly childcare price. We find participation rates among single mothers to increase by around 2.2 percentage points for the base-case scenario, while for married women participation rates are modelled to fall. Our simulation results indicate a small increase in overall participation of around 30,000 individuals.

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Bibliographic Info

Article provided by Institute for Fiscal Studies in its journal Fiscal Studies.

Volume (Year): 21 (2000)
Issue (Month): 1 (March)
Pages: 75-103

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Handle: RePEc:ifs:fistud:v:21:y:2000:i:1:p:75-103

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  1. Nada Eissa & Hilary Williamson Hoynes, 2000. "The Earned Income Tax Credit and the Labor Supply of Married Couples," Public Economics 9912001, EconWPA.
  2. Andrew Dilnot & Alan Duncan, 1992. "Lone mothers, family credit and paid work," Fiscal Studies, Institute for Fiscal Studies, vol. 13(1), pages 1-21, February.
  3. Michael P. Keane & Robert Moffitt, 1995. "A structural model of multiple welfare program participation and labor supply," Working Papers 557, Federal Reserve Bank of Minneapolis.
  4. Arthur van Soest, 1995. "Structural Models of Family Labor Supply: A Discrete Choice Approach," Journal of Human Resources, University of Wisconsin Press, vol. 30(1), pages 63-88.
  5. Richard Blundell & Alan Duncan & Julian McCrae & Costas Meghir, 2000. "Evaluating In-Work Benefit Reform: The Working Families Tax Credit in the U.K," JCPR Working Papers 160, Northwestern University/University of Chicago Joint Center for Poverty Research.
  6. Moffitt, Robert, 1992. "Incentive Effects of the U.S. Welfare System: A Review," Journal of Economic Literature, American Economic Association, vol. 30(1), pages 1-61, March.
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