In-work benefits (IWBs) have become very common transfer programs that seek to meet both efficiency and equity targets. An expanding literature has assessed the effects of these policies on income distribution and labor supply. In this paper, we estimate the distributional and behavioral impacts of a simulated IWB in Spain based on the replacement of the existing working mother tax credit (WMTC). The US Earned Income Tax Credit (EITC) is used as a reference. We simulate the effects of the proposed scheme using EUROMOD and a discrete choice model of labor supply. Our results show that the enhancement of the proposed IWB would have significant and positive effects both in terms of female labor participation and inequality and poverty reduction.
