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State Earned Income Tax Credits and Participation in Regular and Informal Work

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  • Samara Potter Gunter

    (Colby College)

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    Abstract

    I use variation in state EITCs between 1997-2005 to identify changes in informal and regular labor supply by unmarried men and women with children. Men’s participation in the informal sector declines by 6 percentage points if a state EITC increases by 10% of the federal credit. Usual regular-sector hours worked per week increase by 4.1 and informal-sector hours per week fall by 2.7 with no effect on total hours. Single men with children appear to respond to state EITCs on the intensive rather than extensive margin and shift away from informal work toward regular work without changing total labor supplied. I find no effects on women’s participation in either regular or informal work.

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    File URL: http://crcw.princeton.edu/workingpapers/WP11-03-FF.pdf
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    Bibliographic Info

    Paper provided by Princeton University, Woodrow Wilson School of Public and International Affairs, Center for Research on Child Wellbeing. in its series Working Papers with number 1298.

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    Date of creation: Aug 2010
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    Handle: RePEc:pri:crcwel:wp11-03-ff

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    Keywords: Informal economy; earned income tax credit;

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    1. 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.
    2. McCubbin, Janet, 2000. "EITC Noncompliance: The Determinants of the Misreporting of Children," National Tax Journal, National Tax Association, vol. 53(n. 4), pages 1135-64, December.
    3. Sara LaLumia, 2009. "The Earned Income Tax Credit and Reported Self-Employment Income," Department of Economics Working Papers 2009-07, Department of Economics, Williams College.
    4. Maria Cancian & Arik Levinson, 2005. "Labor Supply Effects of the Earned Income Tax Credit: Evidence from Wisconsin Supplemental Benefit for Families with Three Children," NBER Working Papers 11454, National Bureau of Economic Research, Inc.
    5. Cowell, Frank A., 1985. "Tax evasion with labour income," Journal of Public Economics, Elsevier, vol. 26(1), pages 19-34, February.
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