The effect of the working families' tax credit on labour market participation

Abstract

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.

Does welfare reform affect fertility? Evidence from the UK

“…Those working more than 16 hours prior to the reform may have an incentive to reduce their hours both because their incomes are higher and because of the negative substitution effect created by the taper, but the 16-hour condition in WFTC ensures that labor supply does not fall to zero. All of the studies that look at the effect of WFTC on participation, summarized in Table 1, find a positive and significant effect of WFTC on the employment of this group (see also Brewer and Browne, 2006, for a review and careful comparison of these studies).…”

Alternatywy dla dochodu podstawowego: przegląd krytyczny

“…W Stanach podobne, a nawet wyższe stopy "podatkowe" zniechęcają do zwiększenia przychodów, kiedy ulgi przestają obowiązywać. Z pewnością zarówno w Stanach, jak i w Wielkiej Brytanii system ten sprawił, że mniej zarabiający członkowie gospodarstw domowych uprawnionych do ulg, zazwyczaj kobiety w związkach małżeńskich, zaczęli zmniejszać wymiar godzin płatnej pracy lub opuszczać rynek pracy (Nichols i Rothstein 2016;Brewer i Browne 2006). Ulgi podatkowe rodzą też błędy i drobne oszustwa.…”

In-work benefits and unemployment

“…2 In symmetric equilibrium with free entry,i.e. with V = 0, 2 The threat point for the worker is given by the value of unemployment.…”