UCL logo

UCL Discovery

UCL home » Library Services » Electronic resources » UCL Discovery

Employment, hours of work and the optimal design of earned income tax credits

Blundell, R.; Shephard, A.; (2008) Employment, hours of work and the optimal design of earned income tax credits. (IFS Working Papers W08/01). Institute for Fiscal Studies: London, UK. Green open access

[img]
Preview
PDF
14797.pdf

Download (451kB)

Abstract

This paper examines the optimal schedule of marginal tax rates and the design of earned income tax credits. The analysis is based on a structural labour supply model which incorporates unobserved heterogeneity, fixed costs of work and the detailed non-convexities of the tax and transfer system. An analytical framework is developed that allows explicitly for an extensive margin in work choices and also the partial observability of hours of work. This is contrasted to the standard case in which only earnings (and non-labour income) are observable to the government. The empirical motivation is the earned income tax credit reforms in Britain which include a minimum hours requirement at 16 hours per week and a further bonus at 30 hours. Our analysis examines the case for the use of hours-contingent payments and lends support for the overall structure of the British tax credit reforms. However, we also provide a strong case for a further reduction of marginal rates for lower earners but only those with school age children.

Type: Working / discussion paper
Title: Employment, hours of work and the optimal design of earned income tax credits
Open access status: An open access version is available from UCL Discovery
Publisher version: http://dx.doi.org/10.1920/wp.ifs.2008.0801
Language: English
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of SandHS > Dept of Economics
URI: http://discovery.ucl.ac.uk/id/eprint/14797
Downloads since deposit
977Downloads
Download activity - last month
Download activity - last 12 months
Downloads by country - last 12 months

Archive Staff Only

View Item View Item