Chapter 9 In-Work Transfers in Good Times and Bad: Simulations for Ireland

In-work transfers are often seen as a good trade-off between redistribution and efficiency as they alleviate poverty among low-wage households, while increasing financial incentives to work. In the context of the recent economic downturn, they have been advocated to offset the disincentive effect of wage cuts and to cushion the negative redistributive impact of earnings losses and cuts in the minimum wage. We study this double effect for Ireland, a country deeply affected by the economic crisis, and for which existing in-work support policies are of limited scope. The employment and poverty effects of alternative policies are analysed thanks to counterfactual simulations built using a micro-simulation model, the Living in Ireland Survey 2001 and labour supply estimations. We focus on an extension of the existing scheme, the Family Income Supplement and its replacement by the refundable tax credit in force in the United Kingdom.