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Evaluating the labour market impact of Working Families' Tax Credit using difference-in-differences

Blundell, R.; Brewer, M.; Shephard, A.; (2005) Evaluating the labour market impact of Working Families' Tax Credit using difference-in-differences. (HMRC Working Papers 4 ). HM Revenue and Customs: London, UK. Green open access

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Abstract

A difference-in-differences methodology cannot identify the labour market impact of WFTC alone because other taxes and benefits changed at the same time as its introduction. However, a comparison of the change in employment rates for parents against adults without children should underestimate any positive labour supply impact of WFTC for lone parents. Using two different household surveys, we find WFTC and associated reforms increased lone parents' employment by around 3.6 percentage points (ppt). For couples with children, we find that WFTC and associated reforms had no significant effect on mothers' employment, and was associated with a -0.5ppt change in fathers' employment, with the reforms encouraging households to have one earner rather than two. Overall, these changes correspond to between 25,000 and 59,000 extra workers depending upon the data source used. Robustness analysis of our identifying assumptions is generally favourable to our conclusions for lone parents.

Type: Report
Title: Evaluating the labour market impact of Working Families' Tax Credit using difference-in-differences
ISBN: 190498312X
Open access status: An open access version is available from UCL Discovery
Publisher version: http://www.hmrc.gov.uk/research/index.htm
Language: English
Additional information: © Crown copyright 2005. Reproduced under the Click-Use Licence
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/18451
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