Melbourne Institute Working Paper Series Database (1984 - 2010)

Melbourne Institute Working Paper No. 07/2009

Working Credits: A Low-Cost Alternative to Earned Income Tax Credits?

by

Andrew Leigh and Roger Wilkins

Date: March 2009

Abstract: Over recent years, several developed countries have implemented earned income tax credits in order to encourage welfare recipients to move into work. Here, we investigate the impact of Working Credits, which increased the incentives for welfare recipients to work, but only for a temporary period. Using differences-in-differences and regression-adjusted differences-in-differences, we find evidence that the introduction of the Working Credit increased employment rates, earnings and exits for those on income support. Results from matched differences-in-differences are less precise, but generally consistent with the other two empirical strategies. Back-of-the-envelope estimates suggest that on a cost-per-job basis, the Working Credit compares favourably with existing labour market programs.

 

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