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Journal Article

In-work credits in the UK and the US

Authors

Publication date

Dec 2019

Summary

In‐work credits grew in popularity worldwide during the late 1990s and 2000s as a means of reforming welfare systems in ways that could both encourage work and reduce poverty. This paper reviews the role of in‐work tax credits in the UK and the US, what is known and remains to be known about their impacts and distributional consequences, and the possibilities for reform. Evidence is clear that in‐work credits reduce poverty and can encourage lone parents to work, but have minimal impacts, in aggregate, on second earners. Spending on in‐work credits has grown in the UK, but there have been two major overhauls of the way these are structured so that, on current plans, the UK will not have an identifiable in‐work credit by 2023. In the US, in‐work assistance has grown in generosity and reach since the 1980s, thanks to broad political support for the Earned Income Tax Credit (EITC) and the (less‐targeted) Child Tax Credit. Future debates in the UK should focus on the rise of in‐work poverty, particularly amongst couples, with some needed focus on the design of in‐work benefits, a debate where economic analysis and evidence should have a major role to play. In the US, the policy discussion should be about whether to increase substantially the EITC for those without children, and how best to maintain or expand the credit's generosity for those with children.

Published in

Fiscal Studies

Volume and page numbers

40 , 519 -560

DOI

https://doi.org/10.1111/1475-5890.12207

ISSN

16

Subjects

Labour Market, Households, Economics, Poverty, Public Policy, and Welfare Benefits

Notes

Open Access; © 2020 The Authors; This is an open access article under the terms of the Creative Commons Attribution‐NonCommercial‐NoDerivs License, which permits use and distribution in any medium, provided the original work is properly cited, the use is non‐commercial and no modifications or adaptations are made.

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