Evaluating the Working Families Tax Credit (original) (raw)

The labour market impact of the working families' tax credit

2000

Abstract In October 1999, the working families' tax credit (WFTC) replaced family credit as the main package of in-work support for families with children. Among a range of stated aims, the WFTC is intended to '��� improve work incentives, encouraging people without work to move into employment'. In this paper, we consider the impact of WFTC on hours and participation.

Evaluating the labour market impact of Working Families' Tax Credit using difference-in-differences

2005

A difference-in-differences methodology cannot identify the labour market impact of WFTC alone because other taxes and benefits changed at the same time as its introduction. However, a comparison of the change in employment rates for parents against adults without children should underestimate any positive labour supply impact of WFTC for lone parents. Using two different household surveys, we find WFTC and associated reforms increased lone parents' employment by around 3.6 percentage points (ppt).

Household labour supply, childcare costs and tax credits

1999

Abstract The UK Government is planning to replace Family Credit, the existing system of in-work support for families with children, by a new tax credit, the Working Families Tax Credit (WFTC) to be paid directly through the income tax system. This tax credit includes a generous childcare tax credit component, making childcare more affordable to working households on low incomes. In this paper we model the impact of the WFTC on work incentives and on use of childcare services.

The impact of tax and benefit changes between April 2000 and April 2003 on parents' labour supply

2004

This Briefing Note provides the first published estimates of the labour market impact of the new tax credits, and the tax and benefit reforms that preceded them, on families with children. Specifically, this note examines all personal tax and benefit reforms introduced between April 2000 and April 2003. We use a structural model of labour supply to examine how these changes affect both the participation rate (the proportion of parents who would like to work at a given hourly wage) and the average weekly hours of work.

Employment, Hours of Work and the Optimal Taxation of Low-Income Families

The Review of Economic Studies, 2011

Employment, Hours of Work and the Optimal Taxation of Low Income Families * The optimal design of low income support is examined using a structural labour supply model. The approach incorporates unobserved heterogeneity, fixed costs of work, childcare costs and the detailed non-convexities of the tax and transfer system. The analysis considers purely Pareto improving reforms and also optimal design under social welfare functions with different degrees of inequality aversion. We explore the gains from tagging and also examine the case for the use of hours-contingent payments. Using the tax schedule for lone parents in the UK as our policy environment, the results point to a reformed non-linear tax schedule with tax credits only optimal for low earners. The results also suggest a welfare improving role for tagging according to child age and for hours-contingent payments, although the case for the latter is mitigated when hours cannot be monitored or recorded accurately by the tax authorities.

Can Parents Afford to Work? Childcare Costs, Tax-Benefit Policies and Work Incentives

SSRN Electronic Journal, 2000

Can Parents Afford to Work? Childcare Costs, Tax-Benefit Policies and Work Incentives * Childcare policies play a crucial role in helping parents reconcile care and employmentrelated tasks. This paper quantifies the net cost of purchasing full-time centre-based childcare in OECD countries taking into account a wide range of influences on household budgets, including fees charged by childcare providers as well as childcare-related tax concessions and cash benefits available to parents. Building on these calculations, family resources are evaluated for different employment situations in order to assess the financial trade-offs between work and staying at home. Results are disaggregated to identify the policy features that present barriers to work for parents whose employment decisions are known to be particularly responsive to financial work incentives: lone parents and second earners with young children requiring care. The results indicate that the cost of purchasing childcare services should be analysed in conjunction with other social and fiscal policies that affect family incomes. While childcare fees can be very high, high prices may not impede employment if tax-benefit systems incorporate well-balanced provisions that help parents pay for these services. Conversely, even highly subsidised childcare markets can leave parents with little financial gain from employment if high tax burdens or benefit claw-back rates give rise to adverse work incentives.

The working families��� tax credit and some European tax reforms in a collective setting

2006

Abstract A framework for simplified implementation of the collective model of labor supply decisions is presented in the context of fiscal reforms in the UK. Through its collective form the model accounts for the well known problem of distribution between wallet and purse, a broadly debated issue which has so far been impossible to model due to the limitations of the unitary model of household behavior. A calibrated data set is used to model the effects of introducing two forms of the Working Families' Tax Credit.

Making work pay: increasing labour supply of secondary earners in low income families with children

Contemporary Economics, 2017

This work is licensed under a Creative Commons Attribution 4.0 International License. In-work support through the tax-benefit system has proved to be an effective way of increasing the labor supply of lone mothers and first earners in couples in a number of OECD countries. At the same time, these instruments usually create negative employment incentives for secondary earners. This in turn reduces the potential of in-work support to address the joint objectives of higher employment and lower poverty levels. In this paper, we present a simulation exercise to examine labor supply implications of a diverse set of possible reforms to the main elements of tax and benefit support for families with children. We set the analysis in the context of the Polish tax and benefit system and show how an adequate combination of increased generosity of support with the introduction of a "double earner" premium may result in an increased labor supply of first and second earners in couples. The simulated reactions are concentrated in the lower half of the income distribution, thus increasing the potential of in-work support to alleviate poverty. Income Tax Credit (EITC) in the US or the Working Families' Tax Credit (WFTC) in the UK are meanstested at the family level. As a result, these instruments may generate strong income effects on secondary earners, while high taper rates on their employment income imply high marginal tax rates. These in turn result in disincentive effects at the extensive and intensive margin, respectively.