In the past two decades, a number of industrialised countries – including the US, the UK, Canada and New Zealand – have witnessed an increasing reliance on in‐work support through tax credits and work‐conditioned transfers as a means of providing cash assistance to low‐income families with children. These Governments have used tax credits in an attempt to alleviate poverty without creating adverse incentives for participation in the labour market. In‐work benefits achieve this goal by targeting low‐income families with an income supplement that is contingent on work. Eligibility is based on family income and typically requires the presence of children, reflecting that there are higher out‐of‐work welfare benefits for families with children, that such families have higher costs of working (childcare) and, perhaps, that such families have higher labour supply elasticities than those without children. Family‐income‐based eligibility rules and the interaction with other aspects of the tax and benefit system make the analysis of the impact on work incentives and the impact on other outcomes more complex than what they might appear at first.
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