EFFECTS OF THE EARNED INCOME TAX CREDIT ON INCOME AND WELFARE

Edgar K. Browning

67 citations0/0 files storedNational Tax Journal

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Gender, Labor, and Family Dynamics Economic and Fiscal Studies Labor market dynamics and wage inequality

Abstract

This paper uses the familiar static labor supply model to estimate the effects of the earned income tax credit (EITC) on disposable money income and welfare for the recipient population. Since about two-thirds of recipients, and 84 percent of total earnings, are in the phase-out range of the program, the emphasis is on this group. Using average values for compensated wage elasticities and total income elasticities from the empirical literature, it is estimated that nearly half of recipients in the phase-out range will reduce earnings enough so that their total disposable money incomes decline. In addition, the marginal net benefit averages less than 50 cents per dollar of program cost for this group.

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References

1987Handbook of Labor Economics 1987On the Marginal Welfare Cost of Taxation 1994THE EARNED INCOME TAX CREDIT: PARTICIPATION, COMPLIANCE, AND ANTIPOVERTY EFFECTIVENESS

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2000Tax reform and the Dutch labor market: an applied general equilibrium approach 2004Evaluation of Four Tax Reforms in the United States: Labor Supply and Welfare Effects for Single Mothers 2006The Earned Income Tax Credit at Age 30: What We Know 2011REDISTRIBUTION AND TAX EXPENDITURES: THE EARNED INCOME TAX CREDIT 2001The Earned Income Tax Credit 2001The Optimal Design of the Earned Income Tax Credit 2002Helping Working Families: The Earned Income Tax Credit 2008Where Does it Go? Spending by the Financially Constrained

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