The incidence of an earned income tax credit: evaluating the impact on wages in the UK

Azmat, Ghazala Yasmeen (2006) The incidence of an earned income tax credit: evaluating the impact on wages in the UK. CEPDP (724). London School of Economics and Political Science. Centre for Economic Performance, London, UK. ISBN 0753020203

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Abstract

Tax credits have been a popular way to alleviate in-work poverty. The assumption is typically that the incidence is on the claimant workers. However, economic theory suggests no particular reason to believe that this should be the case. This paper investigates the incidence of the Working Families Tax Credit in the UK introduced in 1999, which unlike similar tax credit policies was paid through the wage packet, increasing the connection between the employer and worker with regard to the tax credit. Using two stage parametric and nonparametric censored regression methods we find compelling evidence to suggest that (1) the firm discriminates by cutting the wage of claimant workers relative to similarly skilled nonclaimant workers when looking at men and (2) there is a spill-over effect onto the wage of both groups for both men and women.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://cep.lse.ac.uk
Additional Information:	© 2006 Ghazala Azmat
Divisions:	Centre for Economic Performance
Subjects:	H Social Sciences > HD Industries. Land use. Labor H Social Sciences > HJ Public Finance
JEL classification:	D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D58 - Computable and Other Applied General Equilibrium Models I - Health, Education, and Welfare > I3 - Welfare and Poverty > I38 - Government Policy; Provision and Effects of Welfare Programs J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J30 - General H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H22 - Incidence
Date Deposited:	23 Jul 2008 10:52
Last Modified:	15 Sep 2023 23:04
URI:	http://eprints.lse.ac.uk/id/eprint/19859

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