BANK I KREDYT styczeń 2008
that at tliis level of earuings both partuers are taxed at the sanie tax ratę. The only advautage of joint taxation for the first earner is therefore the universal tax credit. In Ptiland the differeuces are slightly higher for the family profiles with children (FP12 and FP13) which iu the sceuario when the second earner does not work are eligible for the Honsing Benefit. Moreover, when both partuers earu the 5011' perceutile wagę and work fnll-tinie then they are no longer eligible to receive Family Benefits. This leads to a much higher replacenient ratio for the second earner at full-tiine 50°' perceutile earuings for FP13 compared to FP12 (0.661 compared to 0.603).
6.3. Drawbacks of in-work support
We have discussed above the positive effects of in-work support on finaucial inceutives to work for lone parents and first earuers iu couples iu the British system. A companson of the RRs, however, is also instructive in demoustratiug the negative cousecpieuces of in-work support ou the labour market, uainely lower return to the growtli of gross earuings, and lower work iuceutives for secoud earuers.
As we meutioued above one of the implications of in-work support is the fact that the return to work
as gross earuings rise is lower Łliau in the ahseuce of snch support. In-work support is means-tested aud thus withdrawn as incoine rises. Because of this withdrawal the differeuce in disposable iucome iu response to growiug gross earuings (as a result of higher wages or morę hours of work) for the recipients of in-work support is lower than for those who do not receive it. This cau be demoiislrated usuig family proldes 3 and 7, by lookiug at how full-tinie RRs chauge as we consider different levels of gross earuings (Table 4). Ricusing ou FP3 - as earuings rise from 10*1' to 2511' to 501*1 perceutile iu the UK the full-time RRs change from 0.570 to 0.547 to 0.500, a change respectively by 2.3, and 4.7 perceutage points. In Germany the RRs change from 0.780, to 0.702, to 0.569, i.e. by 7.8 and 13.3 perceutage points. The differeuce in the RRs for FP7 in the case of the UK is 6.5 and 11.7, wliile in Germany it is 10.9 and 15.1. These effects are conseąueuces of the generons in-work support.10
The negative effect of in-work support on the finaucial incentives of second earuers cau be seeu in the companson of incentives ni the UK for couples with and without children (i.e. by compariug FP10 with FP12 aud FP11 with FP13 for both part-time and full-tinie work of the second earner). While the differeuces in Gennany are relatively Iow, those in the UK are much higher. For example at full-tinie 2511' perceutile earuings the differeuce in RRs between FP12 aud FP10 in Germany is 3.6 perceutage points, and in the UK it is 18.6 perceutage points. The reasou for such differeuces between the two countries is the fact that iu the UK families with children (i.e. FP12 aud FP13) are eligible for relatively high values of in-work support ni the case where the secoud earner does not work. This makes eniployment of the second earner lunch less financially attractive, sińce as the secoud earner enters eniployment - and family earuings rise as a result — the WTC is withdrawn. Snch uegative effects ou finaucial attractiveiiess of work resulling from the British style in work support have often been discussed iu the labour market literaturę.20 Iu a receut pajier Haau and Myck (2007a) showed that while introduciug a British-style in-work support iu Gennany wonld have strong positive effects on eniployment of single people aud of first earuers in couples, it wonld have very high negative effects on eniployment of second earuers.
Iu tlns paper we have presented a coniprehenswe companson of work iuceutives between the UK, Gennany and Poland using a set of stylised families. Labour market incenlives resulling from the combmation of gross wages and the rules of respective tax and benefit Systems have been analysed by lookiug at the detailed components of disposable incomes and the shapes of the budget constraints as well as by compariug replacenient ratios computed at part and full-tinie hours of work. For eacli of the 13 family profiles analysed in this paper we have computed disposable incomes at different work intensity levels, taking their gross wages to correspond to the 101*1, 2511' aud 50l“ percentile of the gross wagę distribution.
The aualysis provided iu this paper gives a siuiunary of labour market incentives geuerated by the tliree tax and benefit Systems and amid anistitute a background for considering poteutial improvements to the design of taxes and benefits m eitlier of the countries from the point of view of iucentives to take-up employment. At tlie same tiiue, however, it provides a simplified picture of tlie iuceutives actually faced by individuals. This applies especially strongly to the Polish case for two reasons.
The first of these is a result of the eligibility criteria for Social Assistance benefits. Iu our aualysis for all countries we have assumed that - couditioual ou passing the iucome means-test - the stylised families we exaninied were eligible for Social Assistance. In reality, tliis will not always be the case, sińce in all tliree countries the families have to pass an additional wealtli test. While in the UK aud Gennany this relates to the level of assets, iu Polaud it is couducted without specific
(2000) aud Myck, Keed (2006) ou lite Britisli reforma.