Abstract
High welfare withdrawal rates generate high effective marginal tax rates and work disincentives; but reducing withdrawal rates extends welfare to the better‐off. We analyse pension taper reduction effects for lone mothers subject to the Australian tax and welfare reforms of July 2000. The changes in work incentives were trivial. Taper reductions extended income support and provided larger family payments to high income lone mothers previously excluded from welfare. Approximately 90 per cent of the better‐off group now made eligible for income support had a long history of welfare reliance. The taper reduction encouraged them to stay on welfare longer.
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