Earned income tax credits and labor supply: New evidence from a british natural experiment

Andrew Leigh*

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    18 Citations (Scopus)

    Abstract

    With many countries considering the adoption of a system of earned income tax credits, it is useful to analyze how different types of credits affect labor supply and earnings. This paper focuses on a 1999 reform to the UK tax credit system, which increased the value of the credit and reduced the phaseout rate. Using panel data, with individual fixed effects, I compare eligibles and ineligibles within five groups: all individuals; those whose demographic characteristics predict that they will have low earnings; single women; women in couples; and men in couples. Over a 15-month period, boosting the credit appears to have raised the labor participation rates, hours, and earnings of those who were eligible to receive it.

    Original languageEnglish
    Pages (from-to)205-224
    Number of pages20
    JournalNational Tax Journal
    Volume60
    Issue number2
    DOIs
    Publication statusPublished - Jun 2007

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