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Working Credits: A Low-Cost Alternative to Earned Income Tax Credits?

Author

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  • Andrew Leigh

    (Economics Program, Research School of Social Sciences, The Australian National University)

  • Roger Wilkins

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

Abstract

Over recent years, several developed countries have implemented earned income tax credits in order to encourage welfare recipients to move into work. Here, we investigate the impact of ‘Working Credits', which increased the incentives for welfare recipients to work, but only for a temporary period. Using differences-in-differences and regression-adjusted differences-in-differences, we find evidence that the introduction of the Working Credit increased employment rates, earnings and exits for those on income support. Results from matched differences-in-differences are less precise, but generally consistent with the other two empirical strategies. Back-of-the-envelope estimates suggest that on a cost-per-job basis, the Working Credit compares favourably with existing labour market programs.

Suggested Citation

  • 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.
  • Handle: RePEc:iae:iaewps:wp2009n07
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    File URL: http://melbourneinstitute.unimelb.edu.au/downloads/working_paper_series/wp2009n07.pdf
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    References listed on IDEAS

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    1. 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.
    2. James Banks & Richard Disney & Alan Duncan & John Van Reenen, 2005. "The Internationalisation of Public Welfare Policy," Economic Journal, Royal Economic Society, vol. 115(502), pages 62-81, March.
    3. Saul D. Hoffman & Laurence S. Seidman, 2003. "Helping Working Families: The Earned Income Tax Credit," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number hwf, january-j.
    4. V. Joseph Hotz, 2003. "The Earned Income Tax Credit," NBER Chapters, in: Means-Tested Transfer Programs in the United States, pages 141-198, National Bureau of Economic Research, Inc.
    5. 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).
    6. Paul Gregg & Susan Harkness, 2003. "Welfare Reform and Lone Parents Employment in the UK," The Centre for Market and Public Organisation 03/072, The Centre for Market and Public Organisation, University of Bristol, UK.
    7. Leigh, Andrew, 2007. "Earned Income Tax Credits and Labor Supply: New Evidence From a British Natural Experiment," National Tax Journal, National Tax Association;National Tax Journal, vol. 60(2), pages 205-224, June.
    8. Brewer, Mike & Duncan, Alan & Shephard, Andrew & Suarez, Maria Jose, 2006. "Did working families' tax credit work? The impact of in-work support on labour supply in Great Britain," Labour Economics, Elsevier, vol. 13(6), pages 699-720, December.
    9. Edwin Leuven & Barbara Sianesi, 2003. "PSMATCH2: Stata module to perform full Mahalanobis and propensity score matching, common support graphing, and covariate imbalance testing," Statistical Software Components S432001, Boston College Department of Economics, revised 01 Feb 2018.
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    Cited by:

    1. Michelle Brady & Kay Cook, 2015. "The impact of welfare to work on parents and their children," Evidence Base, Australia and New Zealand School of Government, vol. 2015(3), pages 1-23, September.

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