Evaluating In-Work Benefit Reform: The Working Families Tax Credit in the U.K

Abstract

In this paper we examine the labour market impact of the proposed new earned income tax credit - Working Families Tax Credit - in the U.K. Family labour supply behaviour is modelled as a discrete choice among a finite set of hours alternatives. Our estimation strategy allows for a random preference heterogeneity, fixed costs, program participation and childcare expenditures. In simulation we find moderately sized positive behavioural responses to the introduction of the new tax credit.

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