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

Author

Listed:
  • Francesconi, Marco

    () (University of Essex)

  • Rainer, Helmut

    () (Ifo Institute for Economic Research)

  • van der Klaauw, Wilbert

    () (Federal Reserve Bank of New York)

Abstract

This paper examines the effects of the Working 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.

Suggested Citation

  • Francesconi, Marco & Rainer, Helmut & van der Klaauw, Wilbert, 2007. "The Effects of In-Work Benefit Reform in Britain on Couples: Theory and Evidence," IZA Discussion Papers 2980, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp2980
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    References listed on IDEAS

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    Cited by:

    1. 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 15-37, February.
    2. Richard Blundell & Monica Costa Dias & Costas Meghir & Jonathan Shaw, 2016. "Female Labor Supply, Human Capital, and Welfare Reform," Econometrica, Econometric Society, vol. 84, pages 1705-1753, September.
    3. DAVID M. BLAU & WILBERT van der KLAAUW, 2013. "What Determines Family Structure?," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 579-604, January.
    4. Bastani, Spencer & Moberg, Ylva & Selin, Håkan, 2016. "Estimating participation responses using transfer program reform," Working Paper Series, Center for Labor Studies 2016:4, Uppsala University, Department of Economics.
    5. Francesconi, Marco & Rainer, Helmut & van der Klaauw, Wilbert, 2008. "Unintended Consequences of Welfare Reform: The Case of Divorced Parents," IZA Discussion Papers 3891, Institute for the Study of Labor (IZA).
    6. 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).
    7. repec:eee:wdevel:v:103:y:2018:i:c:p:100-118 is not listed on IDEAS
    8. De Luca, Giuseppe & Rossetti, Claudio & Vuri, Daniela, 2012. "In-Work Benefits for Married Couples: An Ex-Ante Evaluation of EITC and WTC Policies in Italy," IZA Discussion Papers 6739, Institute for the Study of Labor (IZA).
    9. repec:taf:femeco:v:22:y:2016:i:4:p:101-128 is not listed on IDEAS
    10. 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 15-37, February.
    11. Richard Blundell & Monica Costa Dias & Costas Meghir & Jonathan Shaw, 2011. "The long-term effects of in-work benefits in a life-cycle model for policy evaluation," CeMMAP working papers CWP07/11, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    12. Bastani, Spencer & Moberg, Ylva & Selin, Håkan, 2016. "The Anatomy of the Extensive Margin Labor Supply Response," Working Paper Series 2016:11, Uppsala University, Department of Economics.
    13. 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 - Leibniz Institute for Economic Research at the University of Munich, vol. 66(09), pages 28-36, April.
    14. Jonathan Shaw, 2014. "The redistribution and insurance value of welfare reform," IFS Working Papers W14/21, Institute for Fiscal Studies.
    15. Marco Francesconi & Helmut Rainer & Wilbert Klaauw, 2015. "Unintended consequences of welfare reform for children with single parents: a theoretical analysis," Review of Economics of the Household, Springer, vol. 13(3), pages 709-733, September.
    16. Fisher, Hayley & Zhu, Anna, 2016. "The Effect of Changing Financial Incentives on Repartnering," IZA Discussion Papers 10243, Institute for the Study of Labor (IZA).
    17. Ugo Colombino, 2015. "Five Crossroads on the Way to Basic Income. An Italian Tour," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 1(3), pages 353-389, November.
    18. Helmut Rainer & Stefan Bauernschuster & Natalia Danzer & Timo Hener & Christian Holzner & Janina Reinkowski, 2013. "Kindergeld," ifo Forschungsberichte, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 60, October.
    19. Bergolo, Marcelo & Galván, Estefanía, 2018. "Intra-household Behavioral Responses to Cash Transfer Programs. Evidence from a Regression Discontinuity Design," World Development, Elsevier, vol. 103(C), pages 100-118.
    20. Ghazala Azmat, 2014. "Evaluating the effectiveness of in-work tax credits," Empirical Economics, Springer, vol. 46(2), pages 397-425, March.

    More about this item

    Keywords

    tax credit; household labour supply; intrahousehold bargaining; divorce;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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