This paper examines the distributional and efficiency effects of an Earned Income Tax Credit (EITC) program of the kind being strongly advocated for Australia by a number of economists. The paper presents an empirical analysis of the Family Tax Credit proposed by the Australian Labor Party at the time of the 1998 election, as a case study. The results show that, due to the structure of effective tax rates implied by the program, introducing such a system would lead to a large shift in the overall burden of taxation to low and median wage two earner families. Drawing on the findings of empirical research on behavioural responses to taxes, the paper goes on to explain why the program can also be expected to lead to a fall in labour supply and household saving. Thus there is reason to be critical of the impact of the policy both on economic growth and on equity of the income distribution.
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Volume (Year): 5 (2002) Issue (Month): 4 (December) Pages: 549-568 Download reference. The following formats are available: HTML
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Find related papers by JEL classification: I38 - Health, Education, and Welfare - - Welfare and Poverty - - - Government Programs; Provision and Effects of Welfare Programs J29 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Other J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Private Pensions
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