Optimal Design of Earned Income Tax Credits: Evidence from a British Natural Experiment

Andrew Leigh

No 488, CEPR Discussion Papers from Centre for Economic Policy Research, Research School of Economics, Australian National University

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. Over a 15-month period, boosting the credit appears to have raised the labor participation rates, hours, and earnings of those who were eligible to receive it.

Keywords: working families’ tax credit; earned income tax credit; wage subsidies; labor supply; earnings; self-reported health status (search for similar items in EconPapers)
JEL-codes: C23 H21 H31 I18 I38 J22 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2005-03
New Economics Papers: this item is included in nep-lab and nep-pbe
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:auu:dpaper:488

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