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Labor Supply and Participation Effects of the Earned Income Tax Credit: Evidence form the National Survey of America's Families and Wisconsin's Supplemental Benefit for Families with Three Children

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Abstract

We use the National Survey of America's Families to examine the labor market consequences of the Earned Income Tax Credit (EITC) by comparing labor market behavior of eligible parents in Wisconsin, which supplements the federal EITC for families with three children, to the labor market behavior of otherwise similar parents in states that do not supplement the federal tax credit. Most previous empirical studies have either relied on changes in the overall level of EITC benefits over time, as in the 1987 and 1993 program expansions, or have extrapolated from measured labor supply responses to other tax and benefit programs, assuming that responses to those programs will be similar to EITC responses. By contrast, our cross-state comparison examines a larger difference in EITC benefits, and one that can be directly attributed to the EITC program rather than to related programs. For example, a three-child family in Wisconsin is eligible for an extra 17.2 percent tax credit (43 percent of the 40 percent federal credit) above that received by a comparable family in a state with no supplemental EITC -a difference larger than the entire federal EITC during its expansion in 1987 from 11 to 14 percent.

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Bibliographic Info

Paper provided by Georgetown University, Department of Economics in its series Working Papers with number gueconwpa~02-02-08.

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Date of creation: 08 Feb 2002
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Handle: RePEc:geo:guwopa:gueconwpa~02-02-08

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Postal: Georgetown University Department of Economics Washington, DC 20057-1036
Phone: 202-687-6074
Fax: 202-687-6102
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Web page: http://econ.georgetown.edu/

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Postal: Marcia Suss Administrative Officer Georgetown University Department of Economics Washington, DC 20057-1036
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Web: http://econ.georgetown.edu/

Related research

Keywords: Earned income tax credit; National Survey of America's Families; labor force participation.;

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References

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  1. Bruce D. Meyer & Dan T. Rosenbaum, 1998. "Welfare, the Earned Income Tax Credit, and the Labor Supply of Single Mothers," JCPR Working Papers 32, Northwestern University/University of Chicago Joint Center for Poverty Research.
  2. Bruce D. Meyer & Dan T. Rosenbaum, 2000. "Making Single Mothers Work: Recent Tax and Welfare Policy and its Effects," NBER Working Papers 7491, National Bureau of Economic Research, Inc.
  3. N. Eissa & H. W. Hoynes, . "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.
  4. Ellwood, David T., 2000. "The Impact of the Earned Income Tax Credit and Social Policy Reforms on Work, Marriage, and Living Arrangements," National Tax Journal, National Tax Association, vol. 53(n. 4), pages 1063-1106, December.
  5. Scholz, John Karl, 1994. "The Earned Income Credit: Participation, Compliance, and Antipoverty Effectiveness," National Tax Journal, National Tax Association, vol. 47(1), pages 63-87, March.
  6. Stacy Dickert & Scott Houser & John Karl Scholz, 1995. "The Earned Income Tax Credit and Transfer Programs: A Study of Labor Market and Program Participation," NBER Chapters, in: Tax Policy and the Economy, Volume 9, pages 1-50 National Bureau of Economic Research, Inc.
  7. V. Joseph Hotz & John Karl Scholz, 2001. "The Earned Income Tax Credit," NBER Working Papers 8078, National Bureau of Economic Research, Inc.
  8. Nada Eissa & Jeffrey B. Liebman, 1995. "Labor Supply Response to the Earned Income Tax Credit," NBER Working Papers 5158, National Bureau of Economic Research, Inc.
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Cited by:
  1. V. Joseph Hotz & John Karl Scholz, 2006. "Examining the Effect of the Earned Income Tax Credit on the Labor Market Participation of Families on Welfare," NBER Working Papers 11968, National Bureau of Economic Research, Inc.

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