ABSTRACT
This chapter investigates how in-work tax allowances linked to family size compare with a revenue equivalent tax-free labour income in terms of their impact on labour market participation, especially among older workers. It discusses the heterogeneity of the tax reform effects on the labour market decisions of individuals. The chapter shows whether replacing in-work benefits linked to family dependants with a revenue equivalent tax-free labour income can increase the overall labour market participation. It outlines the model used for estimation of labour market participation decision and the results obtained from its empirical application. The chapter presents the results from simulating the labour market participation effects arising from replacing in-work benefits linked to family dependants with a revenue equivalent tax-free labour income. It also investigates the labour market participation effect from linking in-work benefits to the number of dependent persons. The chapter details labour market participation, so that the effects of alternative tax policies on the supply of hours are ignored.
