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Did Working Families' Tax Credit work? Analysing the impact of in-work support on labour supply and programme participation

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  • Brewer, M.
  • Duncan, A.
  • Shephard, A.
  • Suarez, M.J.

Abstract

With micro-data from before and after a major reform in 1999 to the structure and form of in-work transfers in the UK, this paper uses a structural model of labour supply and programme participation to show the impact of a reform to in-work support (Working Families' Tax Credit) on both labour supply and programme participation (or take-up). Estimates suggest that the changes in in-work incomes through the introduction of WFTC increased labour supply of lone mothers by around 4.6 percentage points, slightly reduced labour supply of mothers in couples by 0.2 percentage points, and increased the labour supply of fathers in couples by 0.8 percentage points, equivalent to a net increase in participation of 94,000 workers. Participating in Family Credit, the UK's in-work programme before October 1999, conferred a utility loss as well as a utility gain from the extra income, but we find this utility cost of participation to be lower under WFTC.

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File URL: http://discovery.ucl.ac.uk/18475/1/18475.pdf
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Bibliographic Info

Paper provided by University College London in its series Open Access publications from University College London with number http://discovery.ucl.ac.uk/18475/.

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Date of creation: Dec 2003
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Handle: RePEc:ner:ucllon:http://discovery.ucl.ac.uk/18475/

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  1. 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.
  2. Richard Blundell & Alan Duncan & Julian McCrae & Costas Meghir, 2000. "The labour market impact of the working families’ tax credit," Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 75-103, March.
  3. Soest, A.H.O. van & Das, J.W.M. & Gong, X., 2001. "A Structural Labour Supply Model with Flexible Preferences," Open Access publications from Tilburg University urn:nbn:nl:ui:12-119390, Tilburg University.
  4. Brewer, M. & Myck, M. & Reed, H., 2001. "Financial support for families with children: options for the new integrated child credit," Open Access publications from University College London http://discovery.ucl.ac.u, University College London.
  5. Duclos, Jean-Yves, 1995. "Modelling the take-up of state support," Journal of Public Economics, Elsevier, vol. 58(3), pages 391-415, November.
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Cited by:
  1. Jane Waldfogel, 2007. "Welfare Reforms and Child Well-Being in the US and UK," CASE Papers case126, Centre for Analysis of Social Exclusion, LSE.
  2. Naci Mocan & Duha T. Altindag, 2013. "Salaries and Work Effort: An Analysis of the European Union Parliamentarians," Auburn Economics Working Paper Series auwp2013-02, Department of Economics, Auburn University.
  3. Michal Myck & Howard Reed, 2006. "Tax and Benefit Reforms in a Model of Labour Market Transitions," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 75(3), pages 208-239.
  4. Andrew Leigh & Roger Wilkins, 2009. "Working Credits: A Low-Cost Alternative to Earned Income Tax Credits?," Melbourne Institute Working Paper Series wp2009n07, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  5. Bargain, Olivier & Orsini, Kristian, 2006. "Beans for breakfast? How exportable is the British workfare model?," Open Access publications from University College Dublin urn:hdl:10197/560, University College Dublin.
  6. P Bingley & Ian Walker, 2009. "The labor supply effect of in-kind transfers," Working Papers 599359, Lancaster University Management School, Economics Department.
  7. Gregg, Paul & Waldfogel, Jane & Washbrook, Elizabeth, 2006. "Family expenditures post-welfare reform in the UK: Are low-income families starting to catch up?," Labour Economics, Elsevier, vol. 13(6), pages 721-746, December.
  8. Lydon, Reamonn & Walker, Ian, 2004. "Welfare-to-Work, Wages and Wage Growth," IZA Discussion Papers 1144, Institute for the Study of Labor (IZA).
  9. 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.

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