Lone Mothers, Family Credit and Paid Work

Dilnot, Andrew; Duncan, Alan

doi:10.1111/j.1475-5890.1992.tb00496.x

Cited by 25 publications

(11 citation statements)

References 8 publications

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“…6 See Moffitt (1992) for a survey of incentive responses to welfare reform in the US, and Dickert, Hauser and Scholz (1995), Eissa and Hoynes (1998) or Eissa and Liebman (1996) for an evaluation of the labour market responses to changes in the US system of Earned Income Tax Credit (EITC). For the UK, see Dilnot and Duncan (1992) for a simulation study of the 16-hour-rule reform in family credit. 7 The discrete approach to estimation has become increasingly popular in recent literature.…”

Section: Simulating Labour Supply Responsesmentioning

confidence: 99%

The Labour Market Impact of the Working Families' Tax Credit

Blundell

Duncan

McCrae³

et al. 2000

Fiscal Studies

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In October 1999, the working families' tax credit (WFTC) replaced family credit as the main package of in-work support for families with children. Among a range of stated aims, the WFTC is intended to '… improve work incentives, encouraging people without work to move into employment'. In this paper, we consider the impact of WFTC on hours and participation. To simulate labour supply responses, we use a discrete behavioural model of household labour supply with controls for fixed and childcare costs, and unobserved heterogeneity. In simulation, we experiment with a number of scenarios regarding the take-up of the credit, entry wage level and hourly childcare price. We find participation rates among single mothers to increase by around 2.2 percentage points for the base-case scenario, while for married women participation rates are modelled to fall. Our simulation results indicate a small increase in overall participation of around 30,000 individuals.JEL classification: C25, H31, J22.

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Section: Simulating Labour Supply Responsesmentioning

confidence: 99%

The Labour Market Impact of the Working Families' Tax Credit

Blundell

Duncan

McCrae³

et al. 2000

Fiscal Studies

Self Cite

402

384

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“…Thus, in chapter 6 of Atkinson (1996), where tax benefit models are discussed, a detailed presentation of implicit marginal tax rates implied by complex and overlapping UK schemes appears, but wage rates are treated as exogenous. The same is true of the discussion in Dilnot and Duncan (1992). Yelowitz (1995) also discusses the complex interacting effects of welfare programmes in the United States, displaying their effects on the non‐convex budget sets that we emphasize here, but without any welfare analysis of gains and losses and behavioural response under alternative schemes.…”

mentioning

confidence: 87%

“…This is lower than the combined 75% withdrawal rate on income support and 20% rate on housing benefit that typically apply in the UK. In reality, and as Dilnot and Duncan (1992) document, tax‐back rates vary significantly across households, depending upon household characteristics and on how both programmes and income sources interact. We abstract from these complications here by setting a single and common tax‐back rate in the model across all household deciles receiving transfers. Adding leisure consumption .…”

Section: Assessment Of the Redistributive Effects Of Government Tmentioning

confidence: 99%

Redistributive Effects of Transfer Programmes in the United Kingdom

Bhattarai¹,

Whalley²

2009

Economica

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We discuss the redistribution effects of transfer using a conditional-choice general equilibrium model. We calibrate it to UK data for the early 2000s. Results indicate that a money-metric measure of the welfare value of transfer received by the bottom decile of UK households equals 17% of the cash transfer. INTRODUCTIONMost empirical work that seeks to assess the redistributive effects of transfers paid to lower-income households (AFDC in the United States; income and housing benefit in the United Kingdom) assumes that recipient households are made better off by the full amount of net cash transfers received (net of any tax-back), with wage and other behavioural responses largely ignored. 1 Considerable energy is devoted in some of this literature to calculating and modelling the complex tax-back schemes that accompany these transfers, with implicit tax rates varying by household and income characteristics, discontinuities and spikes appearing in tax rate profiles, and other complex institutional features captured. However, as an extensive older review of the then available work on transfer programmes by Danziger et al. (1981) says, 'the redistributive effect of transfers is generally measured by comparing pre-transfer and post transfer income distributions. This comparison assumes that transfers elicit no behavioral response that would cause income without transfers to deviate from observed pre-transfer income'.2 Subsequent and more recent work in this area, e.g. Dickert et al. (1995), Moffitt (1992) and Hoynes (1993), have focused on partial equilibrium labour supply impacts of transfer programmes, but with only limited attention to impacts on other endogenous variables, including welfare and wage rates. (See Creedy and Kalb 2005 for a more recent review of partial equilibrium literature, including some attempts to compare changes in disposable incomes to changes in ability.)The point of departure in this paper is the observation, which seems not to have appeared in the literature, 3 that, with voluntary participation in transfer programmes (with tax-back or withdrawal provisions), the utility, or real income, value of transfers to participants is typically less than the cash transfers received. If impacts on wage rates are ignored for the moment, individuals (or households) compare utility across two regimes: one with benefits and tax-back arrangements, and the other with no benefits and no taxback, choosing the higher-utility regime. A money-metric utility comparison between the regimes (the real income difference) bears no direct relation to the net of tax-back cash transfer actually received. Indeed, in the extreme case where an individual (or household) is indifferent between participating and not participating, if they were recorded as a benefit programme participant, the real income gain to them from participation in the transfer programme would be zero, despite the disbursement of public funds to the recipient. We therefore argue that in general, and ignoring wage rate effects, the real income rec...

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“…Furthermore, for certain wage rate intervals which place the worker on one of the kinks in the budget constraint, the relationship between wages and hours is negative. 10 Hence the net wage elasticity bears only a loose resemblance to the effect of a proportionate gross wage change, given the nonlinearities of the budget schedule. This type of phenomenon is illustrated by the various figures in Table 1.…”

Section: Individual Labour Supplymentioning

confidence: 99%

Aggregating labour supply and feedback effects in microsimulation

Creedy

Duncan

2001

Working Paper Series

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This paper extends behavioural microsimulation modelling so that third round effects of a policy change can be simulated. The first round effects relate to fixed hours of work, while second round effects allow for changes in desired hours of work at unchanged wages. These allow for endogenous changes to the distribution of wage rates resulting from the labour supply responses to tax changes. This is achieved using the concept of an aggregate 'supply response schedule', which identifies the extent to which average labour supply responds to a proportional change in wage rates. The third round effect is obtained after re-running a microsimulation model with a suitable modification to individuals' wage rates. The method is illustrated using the MITTS behavioural microsimulation model.

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Lone Mothers, Family Credit and Paid Work

Cited by 25 publications

References 8 publications

The Labour Market Impact of the Working Families' Tax Credit

The Labour Market Impact of the Working Families' Tax Credit

Redistributive Effects of Transfer Programmes in the United Kingdom

Aggregating labour supply and feedback effects in microsimulation

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