Optimal Design of Earned Income Tax Credits: Evidence from a British Natural Experiment
AbstractWith many countries considering the adoption of a system of earned income tax credits, it is useful to analyze how different types of credits affect labor supply and earnings. This paper focuses on a 1999 reform to the UK tax credit system, which increased the value of the credit and reduced the phase-out rate. Using panel data, with individual fixed effects, I compare eligibles and ineligibles within five groups: all individuals; those whose demographic characteristics predict that they will have low earnings; single women; women in couples; and men in couples. Over a 15-month period, boosting the credit appears to have raised the labor participation rates, hours, and earnings of those who were eligible to receive it.
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Bibliographic InfoPaper provided by Centre for Economic Policy Research, Research School of Economics, Australian National University in its series CEPR Discussion Papers with number 488.
Length: 29 pages
Date of creation: Mar 2005
Date of revision:
working families’ tax credit; earned income tax credit; wage subsidies; labor supply; earnings; self-reported health status;
Find related papers by JEL classification:
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
- I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
- I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
- J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-06-03 (All new papers)
- NEP-LAB-2006-06-03 (Labour Economics)
- NEP-PBE-2006-06-03 (Public Economics)
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- Leon Bettendorf & Kees Folmer & Egbert Jongen, 2013. "The dog that did not bark: The EITC for single mothers in the Netherlands," CPB Discussion Paper 229, CPB Netherlands Bureau for Economic Policy Analysis.
- Chiara Pronzato, 2013. "Fighting Lone Mothers' Poverty through in-Work Benefits - Methodological Issues and Policy Suggestions," CESifo Working Paper Series 4375, CESifo Group Munich.
- Gong, Xiaodong & Breunig, Robert, 2013. "Channels of Labour Supply Responses of Lone Parents to Changed Work Incentives," IZA Discussion Papers 7574, Institute for the Study of Labor (IZA).
- Fanny Moffette & Dorothée Boccanfuso & Patrick Richard & Luc Savard, 2013. "Estimating the Impact of the Québec’s Work Incentive Program on Labour Supply: An Ex Post Microsimulation Analysis," Cahiers de recherche 13-01, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke.
- Pronzato, Chiara D., 2012. "Comparing Quasi-Experimental Designs and Structural Models for Policy Evaluation: The Case of a Reform of Lone Parental Welfare," IZA Discussion Papers 6803, Institute for the Study of Labor (IZA).
- Tehmina S. Khan & John Norregaard, 2007. "Tax Policy: Recent Trends and Coming Challenges," IMF Working Papers 07/274, International Monetary Fund.
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