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Hi Frances,

You're definitely right about the academic incentives. But, there are other barriers to evaluating the WITB.

a) for its first few years, it was very small. It applied in a very narrow income range, based on income from 18 months earlier. The probability of still being in that income range when you were actually receiving it was not super high.

b) It is now a bit bigger, but data takes a while to come out. I (along with Mark Stabile) have had our eye on evaluating it and have now that data are available it is now becoming possible

c) the inter-provincial variation is fairly weak and so it makes inferences difficult.

d) we do have some Canadian evidence on a program with very similar incentives--the National Child Benefit. So, a 2nd evaluation of a very similar program in Canada--especially when the US evidence is so deep on this issue--is a hard pitch for a top journal. Mark and I wrote the paper on the NCB in 2004 and it was published in 2007 in JPubE: http://faculty.arts.ubc.ca/kmilligan/research/ncb.htm

Oh--and for provinces that 'clawed back' social assistance dollar for dollar with the NCBS, you effectively didn't get it if you were on SA but you did if you left SA for a low-wage job.

So, I disagree with this sentence: "A key point to note is that WITB differs fundamentally from National Child Benefit Supplement, which has no work requirements."

I hadn't noticed the 'pre-pay' option for WITB. Has it always been there? I don't recall it being there when WITB was introduced.

Kevin, I wondered if you were working on something on WITB, but found nothing on your web page. Was that NCB paper harder to sell than you thought it would be? Personally, I like it, but you didn't get me as a referee...

A couple of points:

NCB doesn't have the kick into the labour market that WITB does, only the phase out, so its predicted impacts are different. Also WITB recipients (singles, childless couples, as well as parents) have different labour supply elasticities/reservation wages than NCB recipients (parents)

Because the WITB isn't available to students, to work out its impacts, you have to be able to identify students in your data - a lot of people in that WITB income range are students. This might be an issue with using something like the LAD to assess WITB, I don't know.

"NCB doesn't have the kick into the labour market that WITB does"

Hi Frances, I don't understand this sentence.

The evidence suggested the intensive margin wage supplements or taxback don't matter much. It is the extensive margin (in/out) that matters. In that way, NCB (with SA clawback in place) provides a healthy kickup to the 'work' side of the 'work or welfare' decision. You get NCB if you are working, you don't if on SA.

Kevin, yup, I think that pre-pay was always available. It was one of the things I liked about the WITB.

On the sentence you disagree on - the "clawback" of NCBS from SA recipients means that people get off SA more quickly, so they face a 100% marginal effective tax rate for a shorter period of time. That's different from the WITB, which has that phase in explicitly designed to reduce the marginal effective tax rate by 25 percentage points right around the $3,000 earnings mark.

I see--you are focusing on the marginal wage subsidy effect. Yes, you're right the NCB doesn't affect that.

But, in my take on the literature, most evidence finds little impact of the marginal incentives--most people face binding corner solutions: it is either work 0 hours or 20+ hours. The extensive margin is where much more of the action is, not moving people from working 20 to 25 hours.

This Saez paper is the framework I rely on for the intensive vs extensive margin responses. He suggests that at the low end, participation elasticities are more important.
http://qje.oxfordjournals.org/content/117/3/1039.abstract

ungated--http://elsa.berkeley.edu/~saez/botqje.pdf

and ps thanks for your kind words about the 2007 paper.


Kevin - "I don't understand this sentence."

As I say right at the beginning, "Finally, by making work pay better than welfare, both programs encourage labour force attachment." I agree that the NCB makes the welfare wall shorter, and so encourages labour force participation on the extensive margin. But it doesn't do as much on the intensive margin as WITB does. You can say that empirically this doesn't matter, and you may be right - but since no one has studied WITB it's hard to say this for sure.

I was not a fan of the 2006-2009 WITB. With such a small amount over such a narrow income range (a range into which people bounce in and out at high rates), I thought it was not well designed. I think it would have been much better to consolidate the existing alphabet soup of programs than to add another. My thinking is aligned with Frances that the political return to something 'new' was an important consideration for why it was introduced.

Low income families with children receive something like 10-12 different child benefits. I spend a lot of time trying to figure them out and I find it very hard. I'm not sure how we expect busy single parents to wade through this morass. Simplicity is an undervalued virture here, I think.

The expansion of the benefit size and income ranges in 2010 does help make it more useful.

Hi Frances,

thanks for reminding me about the advance payment option. Found the info here: http://www.cra-arc.gc.ca/bnfts/wtb/fq_qlfyng-eng.html#q10

Looks like a positive option thing. You have to fill in paperwork and send it in.

Are there any HRSDC administrative reports that mention how much take-up there would be for this option?

Anyone have anecdotal information about whether community centres, YWCAs, provincial SA offices etc put a push on for people to fill in these advance payment forms? I know that all of these kinds of institutions put a big push on for people to file taxes in general so they can get CCTB+NCBS etc. But I don't know if they also push people to fill in pre-payment option forms. In the absence of such a push, I think I would be surprised if people did go through the effort for the prepayment option--especially since mobility at those income ranges is fairly high.

...but I agree with Frances that this prepayment option is a good one to have, rather than the long lags associated with CCTB/NCBS and the provincial work supplements administered by the CRA.

Kevin "Low income families with children receive something like 10-12 different child benefits"

I would really like to know how many of those HST and GST credit cheques that are mailed to university and college students end up going astray, getting lost, buried under a pile of dirty socks until it's too late to cash them, etc. Direct deposit is the best way to cope - I really would like to know how many people have signed up for that.

I think people just end up learning by trial and error how the system works. I remember reading in one of those evaluations of the Employment Insurance earnings exemption that people who are on EI for the first time are much more likely to take part-time employment than people who are on EI for the second time. People don't know the fine details, but they more or less figure out the system parameters.

Kevin - I'd be willing to bet that when people go down to the social assistance office they get told to fill out one of those WITB pre-payment forms....

"Finally, by making work pay better than welfare, both programs encourage labour force attachment."

Yes indeed that sentence is there; I don't need to sound so critical--I know that you know your stuff on this!

Also--your point about the difference between single-no kids people and single parents having different elasiticities and circumstances is a very good one.

I don't know much about the WITB, but it sounds like a Canadian version of the Earned Income Tax Credit (EITC).

The EITC has two opposing effects on the incentives facing a low-income worker: 1) the substitution effect and 2) the income effect. The substitution effect encourages the worker to work more by making the value of time spent working more valuable relative to time spent not working, while the income effect encourages the worker to work less by making it possible to maintain any given level of income while working less, because the value of each hour worked is higher.

So if the WITC is like the EITC (I think it is), then you should check out the empirical literature on the EITC. See here for example (PDF): http://www.cbo.gov/sites/default/files/cbofiles/attachments/10-25-2012-Recent_Research_on_Labor_Supply_Elasticities.pdf

The above literature review shows that the for low-income workers, the effective marginal tax rate at the lowest income levels is reduced significantly by the EITC, then plateaus as income rises, and then in the "phase-out" range they start to rise again. On net though the substitution seems to be typically larger than the income effect, so labor force participation increases. But the effects vary a lot by gender, marriage status, number of children, income, etc. Poor single mothers for example are much more likely to work with an EITC than without, for example; high-income married men, not so much.

Jacob - I appreciate you taking the time to respond, but this comment precisely illustrates why so people bother to go out and evaluate Canadian programs. There are dozens? hundreds? thousands? of papers evaluating the EITC. WITB is like the EITC, and we know what the EITC does, so we know what the WITB does.

Not obvious. I mean, it's obvious that high income married men won't be positively effected by the WITB (unless they have backwards-bending labour supply curves - someone's taxes have to rise to pay for these programs). It's fairly obvious how, in theory, these programs affect the budget constraint, and that they create income and substitution effects.

But it's not obvious that low income people will respond to the WITB in the same way that they respond to the EITC. WITB is not conditional on the # of kids, EITC, for the most part, is. WITB is smaller. It's nested within a very different set of social programs (universal health care, more generous social assistance, etc). Culturally the two countries are very different - we have had, until recently, a very high skill immigrant flow, and most of our immigrants are legal. The US has a much lower skill immigrant flow, and many US immigrants are illegal. This matters because immigrants make up a significant chunk those who would be affected by the WITB. The vast majority of the evaluations of EITC - the "stylized facts" about the program happened before the 2008 economic downturn.

I actually really like this plan and think it could really help in eliminating back taxes. I have always thought this is one of our nation's biggest tax problems. A fair taxation program can help eliminate the amount of back taxes our country accrues each year. I really hope this helps.

I really enjoyed this post & the discussion to follow. Since I was around for the birth of WITB.

As I always say, it's the first time I've ever heard of a tax measure being named for the Finance Minister's home riding........

Ian - Excellent! I'm going to tweet that. B.t.w., which of the Ian Brodies on twitter are you - are you "logger, speaker, budding author and ever-hopeful Newcastle United fan" "Folklorist; bon vivant; cryogenecist; proud grandmother of quints" or "World class journalist with a splash is wrestling talent"?

"As I always say, it's the first time I've ever heard of a tax measure being named for the Finance Minister's home riding........"

Brilliant!

Excellent tax credit for the working class family!

Great note that clearly highlights WITB and CCTB difference. Support for low income households is a must but should also be available when it is most needed and WITB seems to be a step in the right direction. Most attractive feature of WITB is that eligible people can get some portion of it in advance. This makes a big difference for families with children and i am sure it will be much appreciated.

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