Advanced Search
MyIDEAS: Login to save this paper or follow this series

Is the EITC Equivalent to an NIT? Conditional Cash Transfers and Tax Incidence

Contents:

Author Info

  • Jesse Rothstein

Abstract

The Earned Income Tax Credit (EITC) is intended to encourage work. But EITC-induced increases in labor supply may drive wages down, shifting the intended transfer toward employers. I simulate the economic incidence of the EITC under a range of plausible supply and demand elasticities. In all of the scenarios that I consider, a substantial portion of the intended transfer to low income single mothers is captured by employers through reduced wages. The transfer to employers is borne in part by low skill workers who are not themselves eligible for the EITC and are therefore made strictly worse off by its existence. I contrast the EITC with a traditional Negative Income Tax (NIT). The NIT discourages work, and so induces large transfers from employers of low skill labor to their workers. With my preferred parameters the EITC increases after-tax incomes by $0.73 per dollar spent, while the NIT yields $1.39.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w14966.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14966.

as in new window
Length:
Date of creation: May 2009
Date of revision:
Publication status: published as Rothstein, Jesse. 2010. "Is the EITC as Good as an NIT? Conditional Cash Transfers and Tax Incidence." American Economic Journal: Economic Policy, 2(1): 177-208. DOI: 10.1257/pol.2.1.177
Handle: RePEc:nbr:nberwo:14966

Note: LS PE
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Hausman, Jerry A., 1985. "Taxes and labor supply," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 4, pages 213-263 Elsevier.
  2. Richard Blundell & Andrew Shephard, 2008. "Employment, hours of work and the optimal taxation of low income families," IFS Working Papers W08/01, Institute for Fiscal Studies.
  3. Michael P. Keane & Robert Moffitt, 1995. "A structural model of multiple welfare program participation and labor supply," Working Papers 557, Federal Reserve Bank of Minneapolis.
  4. Jeremy Lise & Shannon Seitz & Jeffrey Smith, 2005. "Equilibrium Policy Experiments and the Evaluation of Social Programs," Working Papers 1076, Queen's University, Department of Economics.
  5. 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.
  6. Pencavel, John, 1987. "Labor supply of men: A survey," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 1, pages 3-102 Elsevier.
  7. Eissa, Nada & Hoynes, Hilary, 2011. "Redistribution And Tax Expenditures: The Earned Income Tax Credit," National Tax Journal, National Tax Association, vol. 64(2), pages 689-729, June.
  8. Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
  9. Bruce D. Meyer & Dan T. Rosenbaum, 1999. "Welfare, the Earned Income Tax Credit, and the Labor Supply of Single Mothers," NBER Working Papers 7363, National Bureau of Economic Research, Inc.
  10. Nada Eissa & Hilary W. Hoynes, 2006. "Behavioral Responses to Taxes: Lessons from the EITC and Labor Supply," NBER Chapters, in: Tax Policy and the Economy, Volume 20, pages 73-110 National Bureau of Economic Research, Inc.
  11. Besley, Timothy & Coate, Stephen, 1992. "Workfare versus Welfare Incentive Arguments for Work Requirements in Poverty-Alleviation Programs," American Economic Review, American Economic Association, vol. 82(1), pages 249-61, March.
  12. Jonathan Gruber & Alan B. Krueger, 1991. "The Incidence of Mandated Employer-Provided Insurance: Lessons from Workers' Compensation Insurance," NBER Chapters, in: Tax Policy and the Economy, Volume 5, pages 111-144 National Bureau of Economic Research, Inc.
  13. 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.
  14. George J. Borjas & Lawrence F. Katz, 2007. "The Evolution of the Mexican-Born Workforce in the United States," NBER Chapters, in: Mexican Immigration to the United States, pages 13-56 National Bureau of Economic Research, Inc.
  15. Bingley, Paul & Lanot, Gauthier, 2002. "The incidence of income tax on wages and labour supply," Journal of Public Economics, Elsevier, vol. 83(2), pages 173-194, February.
  16. David Card, 1989. "The Impact of the Mariel Boatlift on the Miami Labor Market," Working Papers 633, Princeton University, Department of Economics, Industrial Relations Section..
  17. Ghazala Azmat, 2006. "The Incidence of an Earned Income Tax Credit: Evaluating the Impact on Wages in the UK," CEP Discussion Papers dp0724, Centre for Economic Performance, LSE.
  18. Jesse Rothstein, 2008. "The Unintended Consequences of Encouraging Work: Tax Incidence and the EITC," Working Papers 1049, Princeton University, Department of Economics, Center for Economic Policy Studies..
  19. V. Joseph Hotz, 2003. "The Earned Income Tax Credit," NBER Chapters, in: Means-Tested Transfer Programs in the United States, pages 141-198 National Bureau of Economic Research, Inc.
  20. Anderson, Patricia M. & Meyer, Bruce D., 1997. "The effects of firm specific taxes and government mandates with an application to the U.S. unemployment insurance program," Journal of Public Economics, Elsevier, vol. 65(2), pages 119-145, August.
  21. Nada Eissa & Henrik Jacobsen Kleven & Claus Thustrup Kreiner, 2004. "Evaluation of Four Tax Reforms in the United States: Labor Supply and Welfare Effects for Single Mothers," NBER Working Papers 10935, National Bureau of Economic Research, Inc.
  22. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695 Elsevier.
  23. Gruber, Jonathan, 1994. "The Incidence of Mandated Maternity Benefits," American Economic Review, American Economic Association, vol. 84(3), pages 622-41, June.
  24. Teulings, Coen N, 1995. "The Wage Distribution in a Model of the Assignment of Skills to Jobs," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 280-315, April.
  25. Anderson, Patricia M. & Meyer, Bruce D., 2000. "The effects of the unemployment insurance payroll tax on wages, employment, claims and denials," Journal of Public Economics, Elsevier, vol. 78(1-2), pages 81-106, October.
  26. Eissa, Nada & Hoynes, Hilary Williamson, 2004. "Taxes and the labor market participation of married couples: the earned income tax credit," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1931-1958, August.
  27. Robert Moffitt, 2006. "Welfare work Requirements with Paternalistic Government Preferences," Economic Journal, Royal Economic Society, vol. 116(515), pages F441-F458, November.
  28. Gruber, Jonathan, 1997. "The Incidence of Payroll Taxation: Evidence from Chile," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages S72-101, July.
  29. Emmanuel Saez, 2000. "Optimal Income Transfer Programs: Intensive Versus Extensive Labor Supply Responses," NBER Working Papers 7708, National Bureau of Economic Research, Inc.
  30. Bruce D. Meyer, 2002. "Labor Supply at the Extensive and Intensive Margins: The EITC, Welfare, and Hours Worked," American Economic Review, American Economic Association, vol. 92(2), pages 373-379, May.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Turner, Nick, 2010. "Who Benefits From Student Aid? The Economic Incidence of Tax-Based Federal Student Aid," University of California at San Diego, Economics Working Paper Series qt7g0888mj, Department of Economics, UC San Diego.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:14966. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.