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Expanding New York State's Earned Income Tax Credit Programme: the effect on work, income and poverty

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  • Maximilian D. Schmeiser

Abstract

Given its favourable employment incentives and ability to target the working poor, the Earned Income Tax Credit (EITC) has become the primary antipoverty programme at both the federal and state levels. However, when evaluating the effect of EITC programmes on income and poverty, governments generally calculate the effect using simple accounting, where the value of the state or federal EITC benefit is added to a person's income. These calculations omit the behavioural incentives created by the existence of these programmes, the corresponding effect on labour supply and hours worked, and therefore the actual effect on income and poverty. This article simulates the full effect of an expansion of the New York State EITC benefit on employment, hours worked, income, poverty and programme expenditures. These results are then compared to those omitting labour supply effects. Relative to estimates excluding labour supply effects, the preferred behavioural results show that an expansion of the New York State EITC increases employment by an additional 14 244 persons, labour earnings by an additional $95.8 million, family income by an additional $84.5 million, decreases poverty by an additional 56 576 persons and increases costs to the State by $29.7 million.

Suggested Citation

  • Maximilian D. Schmeiser, 2012. "Expanding New York State's Earned Income Tax Credit Programme: the effect on work, income and poverty," Applied Economics, Taylor & Francis Journals, vol. 44(16), pages 2035-2050, June.
    • Handle: RePEc:taf:applec:44:y:2012:i:16:p:2035-2050
    DOI: 10.1080/00036846.2011.558478
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    1. N. Eissa & H. W. Hoynes, "undated". "The Earned Income Tax Credit and the Labor Supply of Married Couples," Institute for Research on Poverty Discussion Papers 1194-99, University of Wisconsin Institute for Research on Poverty.
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    2. Richard V. Burkhauser, 2008. "Creating an EU Flexicurity System: An American Perspective," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 6(04), pages 36-40, December.
    3. Gulgun Bayaz Ozturk, 2018. "Anti‐Poverty Effects of In‐Kind Transfers Among Divorced or Separated Women in the United States," Poverty & Public Policy, John Wiley & Sons, vol. 10(1), pages 57-80, March.
    4. Jeannette Wicks-Lim & Jeffrey Thompson, 2010. "Combining Minimum Wage and Earned Income Tax Credit Policies to Guarantee a Decent Living Standard to All U.S. Workers," Published Studies peri_mw_eitc_oct2010, Political Economy Research Institute, University of Massachusetts at Amherst.
    5. Richard V. Burkhauser, 2008. "Creating an EU Flexicurity System: An American Perspective," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 6(4), pages 36-40, December.

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