The working families tax credit is intended to reduce the tax payments of low to moderate income earners with families.

The WFTC is withdrawn as income rises over a set limit - £91.45 per week from April 2001 - the rate of withdrawal is currently 55p for every extra £1 earned.

It is very difficult to speculate on the likely impacts on the individual due to the complexities of income and substitution effects. Empirical studies on the topic of labour market reform highlight that broad statements are very misleading within this area.

University students can apply their knowledge of indifference curve analysis to illustrate changes in individual's behaviour.

The WFTC is set at a withdrawal rate of 55% (55p in every pound earned). The input parameters range between 10% and 80%.

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