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How Taxes and Welfare Benefits Affect Work Incentives: A Life-Cycle Perspective

Brewer, M and Shaw, J (2018) 'How Taxes and Welfare Benefits Affect Work Incentives: A Life-Cycle Perspective.' Fiscal Studies, 39 (1). 5 - 38. ISSN 0143-5671

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© 2017 The Authors. Fiscal Studies published by John Wiley & Sons Ltd. on behalf of Institute for Fiscal Studies Personal taxes and benefits affect the incentive to work over the life cycle by altering income–age profiles, insuring against adverse shocks and changing the returns to human capital. In this paper, we show how a life-cycle perspective alters our impression of how the UK tax and benefit system affects women's work incentives. Given that actual longitudinal data conflate age effects, cohort effects and policy effects, and, in the UK, are not available covering the full life cycle, we use simulated data produced by a rich, dynamic structural model of female labour supply and human capital that incorporates family formation and fertility. We find that individuals experience considerable variability in work incentives across life that outweighs the variability across individuals. Changes in the presence of children and a partner, as well as the level of any partner's earnings, are key to explaining these patterns: work incentives vary dramatically depending on family composition and the earnings of any partner, especially for the lower-skilled, and most women experience a number of different family types during the course of their lives.

Item Type: Article
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HJ Public Finance
Divisions: Faculty of Social Sciences > Institute for Social and Economic Research
Depositing User: Elements
Date Deposited: 19 Dec 2017 14:59
Last Modified: 19 Mar 2018 20:15

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