The Incidence of an Earned Income Tax Credit: Evaluating the Impact on Wages in the UK

  • Azmat G
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Abstract

Tax credits have been a popular way to alleviate in-work poverty. The assumption is typicallythat the incidence is on the claimant workers. However, economic theory suggests noparticular reason to believe that this should be the case. This paper investigates the incidenceof the Working Families Tax Credit in the UK introduced in 1999, which unlike similar taxcredit policies was paid through the wage packet, increasing the connection between theemployer and worker with regard to the tax credit. Using two stage parametric and nonparametriccensored regression methods we find compelling evidence to suggest that (1) thefirm discriminates by cutting the wage of claimant workers relative to similarly skilled nonclaimantworkers when looking at men and (2) there is a spill-over effect onto the wage ofboth groups for both men and women

Author-supplied keywords

  • Compensation
  • Computable and Other Applied General Equilibrium M
  • Credit
  • Families
  • Family
  • Incidence
  • Income
  • Income Tax
  • Information
  • Policy
  • Poverty
  • Tax
  • Tax Credits
  • Tax credits
  • Taxation and Subsidies: Incidence (H22)
  • Taxes
  • Wage
  • Wages
  • Welfare
  • Well-Being
  • Women
  • Working Families Tax Credit
  • and Labor Costs: General (J30)
  • and Poverty: Government Progra
  • income taxes

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  • PMID: 14396933

Authors

  • Ghazala Yasmeen Azmat

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