The Incidence of an Earned Income Tax Credit: Evaluating the Impact on Wages in the UK
AbstractTax credits have been a popular way to alleviate in-work poverty. The assumption is typically that the incidence is on the claimant workers. However, economic theory suggests no particular reason to believe that this should be the case. This paper investigates the incidence of the Working Families Tax Credit in the UK introduced in 1999, which unlike similar tax credit policies was paid through the wage packet, increasing the connection between the employer and worker with regard to the tax credit. Using two stage parametric and nonparametric censored regression methods we find compelling evidence to suggest that (1) the firm discriminates by cutting the wage of claimant workers relative to similarly skilled nonclaimant workers when looking at men and (2) there is a spill-over effect onto the wage of both groups for both men and women.
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Bibliographic InfoPaper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0724.
Date of creation: May 2006
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Wages; Incidence; Tax Credits;
Find related papers by JEL classification:
- J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
- H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
- I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-08-19 (All new papers)
- NEP-LAB-2006-08-19 (Labour Economics)
- NEP-PBE-2006-08-19 (Public Economics)
- NEP-PUB-2006-08-19 (Public Finance)
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