Do Earned Income Tax Credits for Older Workers Prolong Labour Market Participation and Boost Earned Income? Evidence from Australia's Mature Age Worker Tax Offset

Abstract

We examine Australia's Mature Age Worker Tax Offset (MAWTO), a targeted earned income tax credit of up to $500 to incentivise participation of workers aged 55 and over that existed from 2004–2005 to 2014–2015. Using a difference‐in‐differences approach, we find an apparent impact of the MAWTO of around 0.5 percentage points of increased labour market participation. However, placebo tests and an examination of demographic patterns lead us to believe that this point estimate does not provide compelling evidence of a labour force participation impact of the MAWTO. For women only, it had a small impact on earnings of about 1.5 per cent. Using the point estimates, we estimate that the average cost for each person induced to work longer is between $37,000 and $78,000.