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Prepared by Phillip Swagel.
HM Treasury (1997).
See France, Selected Issues Paper, SM/98/132, December 1998.
For the tax year starting April 2000, the WFTC consists of £5 3.15 per week for a household with an adult working 16 hours, an additional £11.25 for working 30 hours, and another £20-25 per child (the precise amount varies with the age of each child). The child care subsidy reimburses 70 percent of weekly expenses up to £100 for one child or £150 for two or more children. The income threshold above which benefits are reduced is £91.45 per week after income tax and National Insurance contributions.
The base amount of the FC from 1999 has been adjusted to account for inflation and thus make the amount comparable with the 2000-01 WFTC benefit. See Blundell et. al. (1999) and Dilnot and McCrae (1999) for a complete comparison of WFTC and FC.
Before introduction of the WFTC, 5 percent of working families—around 750,000—faced marginal effective tax rates of 70 percent or more; this has now been reduced to around 250,000 families, though many of these still face marginal effective tax rates of 60 percent or more from the combination of the WFTC, income tax, and National Insurance.
Blundell et. al. (1999) use data on 50,000 households from the British Family Resources Survey to estimate structural equations that capture the response of different groups to changes in tax rates and benefits, and then use the estimated relationships in simulations that predict the effect of the WFTC. The effect on single parents and unemployed men in couples is strongly positive in terms of labor force participation, but of households eligible for WFTC, these two groups together are only about half as numerous as couples with the man in employment, for which the WFTC provides disincentives for both the first earner already in the workforce and for potential or existing second earners.
See Holtzblatt and Liebman (1998) for a discussion of administrative issues relating to the WFTC and other in-work benefits.
See Institute for Fiscal Studies (2000) for a complete discussion and analysis of current plans, including those not involving welfare and labor markets.
In 1999, a household with one child receives the maximum benefit of $2,312 for earnings of $6,800 to $12,500; the 20 percent withdrawal rate means that the credit reaches zero at an income of $26,928.
A substantial and controversial literature (not surveyed in this paper) examines the effects on employment of recent increases in the minimum wage in the United States. There is no serious dispute that there is some level at which a minimum wage would be high enough to have an adverse effect on employment, but substantial disagreement as to whether the increases in the United States have met this threshold. As mentioned above, this issue is similarly controversial in the United Kingdom, where the minimum wage is set a fairly low level.
See Kaplan (1998) among many others for a complete discussion of Wisconsin Works and comparison with other state waiver programs.
See Canada Selected Issues Paper, SM/99/14, March 1999, for a comprehensive discussion of Canada’s social welfare system.