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

Melbourne Institute Working Paper No. 07/09

Date: March 2009


Andrew Leigh
Roger Wilkins


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 differencesin-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, theWorking Credit compares favourably with existing labour market programs.

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