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The EITC: Expectation, Knowledge, Use, and Economic and Social Mobility

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  • Timothy M. Smeeding
  • Katherin Ross Phillips
  • Michael O'Connor
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    Abstract

    This paper presents initial findings on the economic impact of the Earned Income Tax Credit (EITC) based on a sample of Chicago area households that filed tax returns in the spring of 1998. Respondents reported on their detailed use of the funds to pay bills, purchase new items, or save. Asset information on the households was also gathered, along with questions regarding the ability of households to make particular expenditures without the help of the EITC. Uses of the EITC are divided into those that improve social mobility (e.g., purchase a car, pay tuition, change housing) and those that primarily help to make ends meet (e.g., pay routine bills, purchase food) and determinants of each are explored in a regression framework. The paper also explores the relationship among the financial system, asset and borrow status, and EITC usage. Implications for tax policy and social policy are drawn in conclusion. As far as we know, this is the first research to address these issues, despite the fact that, excluding programs for the elderly and Medicaid, the EITC is our largest federal entitlement program. This paper was revised April 2000.

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    Bibliographic Info

    Paper provided by Center for Policy Research, Maxwell School, Syracuse University in its series Center for Policy Research Working Papers with number 13.

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    Length: 48 pages
    Date of creation: Oct 1999
    Date of revision:
    Handle: RePEc:max:cprwps:13

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    1. Rebecca M. Blank, David Card and Philip K. Robins, 1999. "Financial Incentives for Increasing Work and Income Among Low-Income Families," Economics Working Papers E99-264, University of California at Berkeley.
    2. Bruce D. Meyer & Dan T. Rosenbaum, 2001. "Welfare, The Earned Income Tax Credit, And The Labor Supply Of Single Mothers," The Quarterly Journal of Economics, MIT Press, vol. 116(3), pages 1063-1114, August.
    3. J. Gruber & A. Yelowitz, . "Public Health Insurance and Private Savings," Institute for Research on Poverty Discussion Papers 1135-97, University of Wisconsin Institute for Research on Poverty.
    4. Neumark, David & Powers, Elizabeth, 1998. "The effect of means-tested income support for the elderly on pre-retirement saving: evidence from the SSI program in the U.S," Journal of Public Economics, Elsevier, vol. 68(2), pages 181-206, May.
    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. Rebecca M. Blank & Patricia Ruggles, 1993. "When Do Women Use AFDC & Food Stamps? The Dynamics of Eligibility vs. Participation," NBER Working Papers 4429, National Bureau of Economic Research, Inc.
    7. Glenn R. Hubbard & Jonathan Skinner & Stephen P. Zeldes, . "Precautionary Saving and Social Insurance," Rodney L. White Center for Financial Research Working Papers 03-95, Wharton School Rodney L. White Center for Financial Research.
    8. Powers, Elizabeth T., 1998. "Does means-testing welfare discourage saving? evidence from a change in AFDC policy in the United States," Journal of Public Economics, Elsevier, vol. 68(1), pages 33-53, April.
    9. 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.
    10. V. Joseph Hotz & John Karl Scholz, 2001. "The Earned Income Tax Credit," NBER Working Papers 8078, National Bureau of Economic Research, Inc.
    11. J. K. Scholz, . "The earned income tax credit: Participation, compliance, and antipoverty effectiveness," Institute for Research on Poverty Discussion Papers 1020-93, University of Wisconsin Institute for Research on Poverty.
    12. repec:cdl:econwp:2050951 is not listed on IDEAS
    13. Jeffrey B. Liebman, 1998. "The Impact of the Earned Income Tax Credit on Incentives and Income Distribution," NBER Chapters, in: Tax Policy and the Economy, Volume 12, pages 83-120 National Bureau of Economic Research, Inc.
    14. Eissa, Nada & Liebman, Jeffrey B, 1996. "Labor Supply Response to the Earned Income Tax Credit," The Quarterly Journal of Economics, MIT Press, vol. 111(2), pages 605-37, May.
    15. 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.
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