Optimal Design of Earned Income Tax Credits: Evidence from a British Natural Experiment
21 Pages Posted: 18 May 2004
Date Written: November 2004
Abstract
With many countries considering the adoption of a system of earned income tax credits, it is useful to analyze how different types of credits affect labor supply and earnings. This paper focuses on a 1999 reform to the UK tax credit system, which increased the value of the credit and reduced the phase-out rate. Using panel data, with individual fixed effects, I compare eligibles and ineligibles within five groups: all individuals; those whose demographic characteristics predict that they will have low earnings; single women; women in couples; and men in couples. The short-term effect of boosting the credit was to raise the labor participation rates, hours, and earnings of those who were eligible for the credit. The reform also reduced the fraction of people who said that they had a serious health problem, or that a health problem prevented them from working.
Keywords: Working Families' Tax Credit, Earned Income Tax Credit, wage subsidies, labor supply, earnings, self-reported health status
JEL Classification: C23, H21, H31, I18, I38, J22
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Labor Supply Response to the Earned Income Tax Credit
By Nada Eissa and Jeffrey B. Liebman
-
Welfare, the Earned Income Tax Credit, and the Labor Supply of Single Mothers
By Bruce D. Meyer and Dan T. Rosenbaum
-
By V. Joseph Hotz and John Karl Scholz
-
The Earned Income Tax Credit and the Labor Supply of Married Couples
-
Financial Incentives for Increasing Work and Income Among Low-Income Families
By Rebecca M. Blank, David Card, ...
-
Making Single Mothers Work: Recent Tax and Welfare Policy and its Effects
By Bruce D. Meyer and Dan T. Rosenbaum