The impact of tax credits on labour supply
AbstractOne of the principle aims of the Working Families' Tax Credit in the UK was to increase the participation of single mothers. The literature to date concludes there was approximately a five-percentage-point increase in employment of single mothers. The differences-in-differences methodology that is typically used compares single mother with single women without children. However, the characteristics of these groups are very different, and change over time in relative covariates are likely to violate the identifying assumption. We find that when we control for differential trends between women with and without children, the employment effect of the policy falls significantly. Moreover, the effect is borne solely by those working full-time (30 hours or more), while having no effect on inducing people into the labor market from inactivity. Looking closely at important covariates over time, we can see sizeable changes in the relative returns to employment between the treatment and control groups.
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Bibliographic InfoPaper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 979.
Date of creation: Oct 2006
Date of revision: Jul 2009
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Web page: http://www.econ.upf.edu/
Tax Credits; Differences-in-differences; Single Mothers.;
Find related papers by JEL classification:
- H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
- I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
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