Labour supply and the tax and benefit system

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.

Journal Article | The Review of Economic Studies
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Conference | 23 - 25 March 2017
An IFS / UCL conference organised by Richard Blundell, Guy Laroque and Cormac O'Dea.
Journal Article | American Economic Review
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Book Chapters
This chapter of the Mirrlees Review (Dimensions of Tax Design) provides an overview of the voluminous literature relating taxand the supply of effort that has developed since the Meade Report (Meade, 1978) on the UK tax system thirty years ago, with a focus on the empirical consensus on how taxes and benefits affect incentives.

Contacts

Stuart Adam

Stuart Adam

Senior Research Economist

Monica Costa Dias

Monica Costa Dias

Associate Director

David Phillips

David Phillips

Associate Director

Barra Roantree

Barra Roantree

Research Economist