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

Leigh, Andrew

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.

Citation

Leigh, Andrew (2007), Earned Income Tax Credits and Labor Supply: New Evidence From a British Natural Experiment, National Tax Journal, 60:2, pp. 205-24

DOI: dx.doi.org/10.17310/ntj.2007.2.03