The impact of tax credits on labour supply
One 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.
References listed on IDEAS
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- 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.
- Richard Dickens & Alan Manning, 2004.
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- Richard Dickens & Alan Manning, 2002. "Has The National Minimum Wage Reduced UK Wage Inequality?," CEP Discussion Papers dp0533, Centre for Economic Performance, LSE.
- Francesconi, Marco & van der Klaauw, Wilbert, 2004. "The Consequences of ‘In-Work’ Benefit Reform in Britain: New Evidence from Panel Data," IZA Discussion Papers 1248, Institute for the Study of Labor (IZA).
- Francesconi, Marco & van der Klaauw, Wilbert, 2004. "The consequences of 'in-work' benefit reform in Britain: new evidence from panel data," ISER Working Paper Series 2004-13, Institute for Social and Economic Research.
- Paul Gregg & Susan Harkness & Sarah Smith, 2009. "Welfare Reform and Lone Parents in the UK," Economic Journal, Royal Economic Society, vol. 119(535), pages 38-65, 02.
- Paul Gregg & Susan Harkness & Sarah Smith, 2007. "Welfare Reform and Lone Parents in the UK," The Centre for Market and Public Organisation 07/182, Department of Economics, University of Bristol, UK.
- Mike Brewer & Tom Clark & Matthew Wakefield, 2002. "Five years of social security reforms in the UK," IFS Working Papers W02/12, Institute for Fiscal Studies.
- Duncan, Alan & Giles, Christopher, 1996. "Labour Supply Incentives and Recent Family Credit Reforms," Economic Journal, Royal Economic Society, vol. 106(434), pages 142-155, January. Full references (including those not matched with items on IDEAS)
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