Design and long-term effects of in-work benefits ** draft – do not cite

Abstract

In-work benefits are an increasingly popular means of transferring income towards the less well-off without compromising work incentives. In this paper, we develop an evaluation framework that includes a full characterisation of the tax system and explicitly considers the role of: (i) contemporaneous incentives to work, (ii) anticipatory effects on the value of education and (iii) future consequences for employment through human capital accumulation. We model women's decisions within a risky environment, explicitly allowing for family dynamics. We estimate our model on British BHPS data and use this to simulate recent policy changes in the UK.