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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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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 03 August 2021

The Labor Market Impact of the Working Families’ Tax Credit

The Labor Market Impact of the Working Families’ Tax Credit

(p.201) 8 The Labor Market Impact of the Working Families’ Tax Credit
Labor Supply and Taxation

Richard Blundell

Alan Duncan

Julian McCrae

Costas Meghir

Oxford University Press

This chapter analyses the impact of the Working Families Tax Credit (WFTC) on working hours and employment. In 1998, the UK Chancellor, Gordon Brown introduced the Working Families Tax Credit (WFTC) as a replacement for Family Credit (FC), the UK’s main in-work benefit. The structure of WFTC was modelled closely on the FC system, with the exception that WFTC was to be packaged as a refundable tax credit rather than as a welfare benefit. The government claimed that WFTC ‘would improve work incentives, encouraging people without work to seek employment.’ This was to be achieved by boosting the in-work incomes available to families in low-wage jobs with children. The WFTC effectively targets two groups: single parents and married couples with children. The chapter simulates labour supply responses using a discrete behavioural model of household labour supply with controls for fixed and childcare costs, and unobserved heterogeneity.

Keywords:   Working Families Tax Credit, working hours, participation, UK, Family Credit, in-work benefit, refundable tax credit, welfare benefit, household labour supply

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