Most existing empirical work on the behavioural effect of personal taxes and benefits takes a static approach. But many of the most important decisions during life have an intertemporal dimension, such as education choices, employment and family formation. We study the tax and benefit system from a lifecycle perspective, providing a richer understanding of its impact on the incentives to work and invest in human capital, and the extent to which it redistributes lifecycle resources. Our analysis is based on simulated data from a dynamic model of lifetime learning, labour supply and savings that embeds a detailed characterisation of the UK tax and benefit system. This allows us to follow individuals over their whole lifecycle and avoid the potentially confounding effects of actual reforms. Our focus is on females. We find considerable dispersion in marginal effective tax rates (METRs) and average tax rates (ATRs) during childbearing years, particularly for lower educated groups. These patterns have become increasingly pronounced over time. In contrast, participation tax rates (PTRs) do not vary much across the lifecycle and have become less dispersed over time.
Jonathan Shaw (IFS) & Mike Brewer (ISER)
Presented by:
Jonathan Shaw (Institute for Fiscal Studies, IFS)
Date & time:
March 7, 2012 1:00 pm
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