Earned Income Tax Credits and Labor Supply: New Evidence From a British Natural Experiment

Andrew Leigh

National Tax Journal, 2007, vol. 60, issue 2, 205-24

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 phaseout 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.

Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:ntj:journl:v:60:y:2007:i:2:p:205-24

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