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Optimal tax rules are used to evaluate the optimality of taxation for lone mothers in Germany and Britain. The theoretical model is combined with elasticities derived from the structural estimation of lone mothers' labour supply. For both countries we do not find that in-work credits with marginal tax rates are optimal. However we show that when the government has a low taste for redistribution, out-of-work transfers and transfer for the working poor are very similar, implying very low marginal tax rates. Further, the current tax and transfer systems in both countries are shown to be optimal only if governments have a much higher welfare value for income received by the non-workers than the working poor. Copyright � Institute of Fiscal Studies. Journal compilation � Royal Economic Society 2009.

We use British panel data to investigate single women's labor supply changes in response to three reforms that affected individuals' work incentives. We use these reforms to identify changes in labor supply. There is evidence of small hours of work effects for two of such reforms. A third reform in 1999 instead led to a significant increase in single mothers' hours of work. The mechanism by which the labor supply adjustments were made occurred largely through job changes rather than hours changes with the same employer. This is little overall effect of the reforms on wages.

Abstract:A growing literature on inference in difference-in-differences (DiD) designs has been pessimistic about obtaining hypothesis tests of the correct size, particularly with few groups. We provide Monte Carlo evidence for four points: (i) it is possible to obtain tests of the correct size even with few groups, and in many settings very straightforward methods will achieve this; (ii) the main problem in DiD designs with grouped errors is instead low power to detect real effects; (iii) feasible GLS estimation combined with robust inference can increase power considerably whilst maintaining correct test size -again, even with few groups, and (iv) using OLS with robust inference can lead to a perverse relationship between power and panel length.