Experimental Evidence Of Incentive Effects

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EXPERIMENTAL EVIDENCE OF INCENTIVE EFFECTS

Negative Income Taxes

The accessible experimental evidence obtained from the experimental negative income tax literature is given by one Canadian and four U.S. negative income tax experiments: New Jersey and Pennsylvania (1968-1972); countryside of North Carolina and Iowa (1970-1972); Seattle and Denver (1970-1978); and Gary, Indiana (1971-1974).

During the time interval 1975-1979, the Canadian experiment was conducted in Manitoba. Dissimilar amounts of basic ensured income were given to different families and their labour market incomes were exposed to different tax rates. The behavior of these families was compared with that of the control group. The control group was a group of like families, which were covered by the negative income tax plan.

Moffitt and Kehrer (1981, p.24) summarized the effects of the four U.S. experiments on the work incentives based on the average rate of tax of 0.50 and a guarantee level near about the poverty line. The inferences are as follows:
(1) The existence of the negative income tax definitely reduces the overall working hours.
(2) The disincentive effects differ significantly by demographic group with the lessening of the working hours ranging from 1 to 8 percent for husbands, 0 to 55 percent for wives, and 12 to 28 percent for families with females as heads.
(3) For a small number of men, the work reduction was in the form of their working hours becoming zero instead of slight declines in
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