The Incidence of an Earned Income Tax Credit: Evaluating the Impact on Wages in the UK

Ghazala Azmat

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: Tax credits have been a popular way to alleviate in-work poverty. The assumption is typically that the incidence is on the claimant workers. However, economic theory suggests no particular reason to believe that this should be the case. This paper investigates the incidence of the Working Families Tax Credit in the UK introduced in 1999, which unlike similar tax credit policies was paid through the wage packet, increasing the connection between the employer and worker with regard to the tax credit. Using two stage parametric and nonparametric censored regression methods we find compelling evidence to suggest that (1) the firm discriminates by cutting the wage of claimant workers relative to similarly skilled nonclaimant workers when looking at men and (2) there is a spill-over effect onto the wage of both groups for both men and women.

Keywords: Wages; Incidence; Tax Credits (search for similar items in EconPapers)
JEL-codes: D58 H22 I38 J30 (search for similar items in EconPapers)
Date: 2006-05
New Economics Papers: this item is included in nep-lab, nep-pbe and nep-pub
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Citations: View citations in EconPapers (13)

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Related works:
Working Paper: The incidence of an earned income tax credit: evaluating the impact on wages in the UK (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:cep:cepdps:dp0724

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