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Labor Supply and Taxation$
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Richard Blundell, Andreas Peichl, and Klaus F. Zimmermann

Print publication date: 2016

Print ISBN-13: 9780198749806

Published to Oxford Scholarship Online: June 2016

DOI: 10.1093/acprof:oso/9780198749806.001.0001

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Earned Income Tax Credit Policies

Earned Income Tax Credit Policies

Impact and Optimality

(p.334) 12 Earned Income Tax Credit Policies
Labor Supply and Taxation

Richard Blundell

Oxford University Press

This chapter addresses policies directed towards low labour market attachment and low wages among certain groups of parents with children. It aims to evaluate the impact and the optimality of Earned Income Tax Credit policies specifically for lone parents. These policies have been at the centre of welfare-to-work reforms in the UK, US, and increasingly in continental Europe. They are in the class of ‘make work pay’ reforms that highlight a ‘work condition’ in welfare policy, aimed at balancing poverty reduction in families with children and employment incentives. Using estimates of structural models of labour supply responses at the extensive and intensive margin, and a comparison between UK and US reforms, the chapter poses the question, ‘can the existing tax credit systems we observe be considered optimal for reasonable social welfare weights?’

Keywords:   low labour market attachment, low wages, children, optimality, Earned Income Tax Credit, lone parents, welfare-to-work, make work pay

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