Optimal design of earned income tax credits: evidence from a British natural experiment

Income tax Australia Great Britain

With many countries considering the adoption of a system of earned income tax credits, it is useful to analyse how different types of credits affect labor supply and earnings. Andrew Leigh focuses on a 1999 reform to the UK tax credit system, which increased the value of the credit and reduced the phase-out rate. Using panel data, he found that, over a 15-month period, boosting the credit appears to have raised the labour participation rates, hours, and earnings of those who were eligible to receive it.

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