The Incentive Effects of the French Tax Credit for Low Wage Earners: a Difficult Evaluation

Abstract

In 2001 the French government introduced a tax credit for low wage earners, called prime pour lemploi. This programme was designed to solve supply problems on the labour market and was adopted as part of a series of reforms to make more profitable the transition from unemployment to employment. On the basis of the 2001 Tax Income Survey, this study evaluates the possible effect of the French tax credit on unemployment with a difference in differences method, based on the comparison of a treatment group against a control group, which has similar characteristics but is supposed not to be affected by the scheme. Two different statistical methods are used for the construction of the groups, using either the estimation of potential wages or the probability to benefit from the programme. No significant effect on employment emerges, including when focusing on the employment of married women.Labour Incentives, Difference in Differences, Tax Credit