Welfare, Incentives, and Family Formations

Rodney Hide, a Member of Parliament in New Zealand, quotes this in his blog:

A married couple, with the mother at home looking after a baby and the father earning $12.50 an hour, will have annual income of $23,254 after taking into account tax, family support and child tax credit. In contrast, if they had decided not to get married, with the woman on the DPB refusing to name the father of the baby and the man living in the same house as a "boarder", their household income would be $35,780, some 53 per cent higher.

Some of the commenters are outraged: "Don't they know that is illegal?" which misses the point. People respond to incentives, and sometimes they/we even do illegal things in response to those incentives. Laws and policies which fail to recognize this are sure to generate unexpected and unintended results.