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The Effects of In-Work Benefit Reform in Britain on Couples: Theory and Evidence

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  • Marco Francesconi
  • Helmut Rainer
  • Wilbert van der Klaauw

Abstract

This paper examines the effects of theWorking Families’ Tax Credit (WFTC) on couples in Britain. We develop a simple model of household decisions which explicitly accounts for the role played by the tax and benefit system. Its main implications are then tested using panel data from the British Household Panel Survey collected between 1991 and 2002. Overall, the financial incentives of the reform had negligible effects on a wide range of married mothers’ decisions, such as eligible (working at least 16 hours per week) and full-time employment (working at least 30 hours per week), employment transitions, childcare use, and divorce rates. Women’s responses, however, were highly heterogeneous, depending on their partners’ labour supply and earnings. Mothers married to low- income men showed larger responses in employment, especially if they had younger children. They were more likely to remain in the labour force and had higher rates at which they entered it. While more likely to receive the tax credit, they also experienced a greater risk of divorce. We find virtually no effect for women with higher-income husbands. Likewise, there are no statistically significant responses among married men.

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Bibliographic Info

Paper provided by Centre for Research into Industry, Enterprise, Finance and the Firm in its series CRIEFF Discussion Papers with number 0709.

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Date of creation: Sep 2007
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Handle: RePEc:san:crieff:0709

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Keywords: Tax credit; household labour supply; intrahousehold bargaining; divorce;

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References

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  1. Richard Blundell & Pierre-Andre Chiappori & Thierry Magnac & Costas Meghir, 2002. "Collective Labor Supply: Heterogeneity and Nonparticipation," Research Unit Working Papers 0210, Laboratoire d'Economie Appliquee, INRA.
  2. Mike Brewer & Marco Francesconi & Paul Gregg & Jeffrey Grogger, 2009. "Feature: In-work Benefit Reform in a Cross-National Perspective - Introduction," Economic Journal, Royal Economic Society, vol. 119(535), pages F1-F14, 02.
  3. 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.
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  16. Iyigun, Murat & Walsh, Randall P., 2007. "Endogenous gender power, household labor supply and the demographic transition," Journal of Development Economics, Elsevier, vol. 82(1), pages 138-155, January.
  17. Hilary Hoynes & Richard Blundell, 2001. "Has "In-Work" Benefit Reform Helped the Labour Market?," NBER Working Papers 8546, National Bureau of Economic Research, Inc.
  18. Marianne P. Bitler & Jonah B. Gelbach & Hilary W. Hoynes & Madeline Zavodny, 2002. "The impact of welfare reform on marriage and divorce," Working Paper 2002-9, Federal Reserve Bank of Atlanta.
  19. Helmut Rainer, 2003. "Should We Write Prenuptial Contracts?," Economics Discussion Papers 572, University of Essex, Department of Economics.
  20. Del Boca, Daniela & Flinn, Christopher J, 1995. "Rationalizing Child-Support Decisions," American Economic Review, American Economic Association, vol. 85(5), pages 1241-62, December.
  21. Marco Francesconi & Wilbert van der Klaauw, 2007. "The Socioeconomic Consequences of "In-Work" Benefit Reform for British Lone Mothers," Journal of Human Resources, University of Wisconsin Press, vol. 42(1).
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Citations

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Cited by:
  1. Marco Francesconi & Helmut Rainer & Wilbert van der Klaauw, 2009. "Unintended Consequences of Welfare Reform: The Case of Divorced Parents," CRIEFF Discussion Papers 0901, Centre for Research into Industry, Enterprise, Finance and the Firm.
  2. DAVID M. BLAU & WILBERT van der KLAAUW, 2013. "What Determines Family Structure?," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 579-604, 01.
  3. Richard Blundell & Monica Costa Dias & Costas Meghir & Jonathan M. Shaw, 2013. "Female Labour Supply, Human Capital and Welfare Reform," NBER Working Papers 19007, National Bureau of Economic Research, Inc.
  4. Monica Costa Dias & Jonathan Shaw & Costas Meghir & Richard Blundell, 2012. "The long-term effects of in-work benefits in a life-cycle model for policy evaluation," 2012 Meeting Papers 93, Society for Economic Dynamics.
  5. Francesconi, Marco & Rainer, Helmut & Klaauw,, 2013. "Unintended consequences of welfare reform for children with single parents: a theoretical analysis," Munich Reprints in Economics 20333, University of Munich, Department of Economics.
  6. Ghazala Azmat, 2014. "Evaluating the effectiveness of in-work tax credits," Empirical Economics, Springer, vol. 46(2), pages 397-425, March.
  7. Blundell, Richard & Francesconi, Marco & van der Klaauw, Wilbert, 2011. "Anatomy of Welfare Reform Evaluation: Announcement and Implementation Effects," IZA Discussion Papers 6050, Institute for the Study of Labor (IZA).
  8. Helmut Rainer & Stefan Bauernschuster & Natalia Danzer & Anita Fichtl & Timo Hener & Christian Holzner & Janina Reinkowski, 2013. "Kindergeld und Kinderfreibeträge in Deutschland: Evaluierung der Auswirkungen auf familienpolitische Ziele," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 66(09), pages 28-36, 04.
  9. Jeffrey Grogger & LynnA. Karoly, 2009. "The Effects of Work-Conditioned Transfers on Marriage and Child Well-Being: A Review," Economic Journal, Royal Economic Society, vol. 119(535), pages F15-F37, 02.

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