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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Mechanics of Replacing Benefit Systems with a Basic Income: Comparative Results from a Microsimulation Approach DECEMBER 2017Any opinions expressed in this paper are those of the author(s) and not those of IZA. Research published in this series may include views on policy, but IZA takes no institutional policy positions. The IZA research network is committed to the IZA Guiding Principles of Research Integrity. The IZA Institute of Labor Economics is an independent economic research institute that conducts research in labor economics and offers evidence-based policy advice on labor market issues. Supported by the Deutsche Post Foundation, IZA runs the world's largest network of economists, whose research aims to provide answers to the global labor market challenges of our time. Our key objective is to build bridges between academic research, policymakers and society. IZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. and distributional effects in a comparative context, undertake a microsimulation study to quantify them, and propose a simple decomposition to identify the mechanisms that drive effects in different country contexts. Results illustrate the challenges, but also the strengths, of existing social protection systems. A BI would fix benefit coverage gaps that exist in many countries, but would require very substantial tax rises if it were to be set at a meaningful level. As support would not be targeted on those most in need, it would not be a costeffective way of directly reducing income poverty. JEL Classification:C81, D31, H22, H55

SummaryWorking families' tax credit (WFTC) was introduced in October 1999 to replace family credit (FC) as the main form of support for low-income working families with children. It aimed to help reduce child poverty both by attracting parents from previously workless families into the labour market and by directing additional support to those already working but living in families with a low income.WFTC was considerably more generous than FC: the credit amount was higher, there was more support for childcare and the rate of credit withdrawal was lower. Because WFTC was only available to families where someone was working, these changes would make it financially more attractive to have one adult in a family work 16 or more hours a week; we would therefore expect some parents in previously workless households to decide to work. Some low-income families with two workers, however, received a windfall gain from this reform, and we might expect that, in some of these families, one of the adults might decide that they no longer needed to work.This Briefing Note compares five recent studies that have examined the labour market impact of WFTC. There is a consensus that WFTC increased the proportion of lone mothers who work but seems to have had little effect overall on the proportion of adults in couples with children who work. If anything, WFTC increased the number of hours worked by adults in families with dependent children, largely because the reform was of particular help to those working fulltime. Overall, it seems likely that WFTC increased the employment rate, because the number of adults in previously workless families who moved into work probably outweighed the number of adults in previously two-worker families who decided not to work.

We study the short-and medium-term impacts of the recent recession on the distribution of net household income in the UK. We document trends in the distribution of income during and immediately after the economy's 6.3 per cent contraction between 2008Q1 and 2009Q2. We then use a tax and benefit microsimulation model combined with macroeconomic and As in other countries, immediate impacts of the recession on net household incomes are remarkably hard to detect, but the pain was merely delayed until 2010-11 and beyond. We find that the major difference between income groups is in the timing of the reductions in income, rather than in their magnitude. For those in the middle and upper parts of the distribution, dependent mainly on labour market income, falls in real income happened largely between 2009-10 and 2011-12. For those towards the bottom, dependent more on benefit incomes, falls in real income will happen largely as a result of the post-recession fiscal tightening between 2010-11 and 2015-16. We explore the sensitivity of the results to different scenarios for employment and earnings: the central and qualitative conclusions prove robust. Policy points• We project that the reductions in household income between 2007-08 and 2015-16 will be spread quite evenly across the income distribution.• The timing of the recession's impact is very different across income groups. Those on middle and higher incomes, largely dependent on labour market incomes, were hit immediately after the recession as real earnings fell sharply. Lower-income families, and in particular those with children, tended to fare less badly than others over that period, but are being hit relatively hard by the tax and benefit measures during the post-recession fiscal consolidation.• The large planned net 'takeaway' from households during the fiscal consolidation is a major driver of the pattern of income changes that we expect to see up to 2015-16. Qualitatively, our conclusions are therefore robust to the direct impacts of quite large deviations in employment and earnings from their forecast levels in the medium term.

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