Taxes and benefits that change the costs and returns from working can have large effects on labour supply choices. These responses have the potential to be one of the main sources of inefficiency of a distortionary tax system. The magnitude of the inefficiency depends on how labour supply reacts to the incentives to work and earn more.
In this area of research we study the determinants of employment, working hours and effort decisions, how sensitive these choices are to working incentives including those shaped by the tax and benefit system, how they depend on socio-demographic characteristics such as education, gender or family composition, and what they imply for the design of a tax and benefit system. Our empirical findings and expertise have directly informed the policy debate and design in this area. For example, the extensive work that culminated with the final report from the IFS Mirrlees Review has been instrumental in informing some of the design features of Universal Credit.
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