IDEAS home Printed from https://ideas.repec.org/a/kap/itaxpf/v14y2007i3p327-343.html
   My bibliography  Save this article

Should we subsidize work? Welfare reform, the earned income tax credit and optimal transfers

Author

Listed:
  • Gregory Acs

    ()

  • Eric Toder

    ()

Abstract

During the 1990s, US income transfer and tax policies shifted towards trying to encourage work among low-income families. Optimal tax theory, however, suggests that work subsidies are usually an inefficient way to raise the incomes of poor families unless the work effort of recipients has external benefits and/or tax payer/voters prefer redistributing income to the working poor rather than the idle poor. This paper discusses the conditions under which work subsidies may be economically efficient and assesses empirical evidence that suggests that welfare reform and expansions of the EITC have increased work effort among low income families, but is inconclusive about whether the policy shift has enabled them to advance beyond entry-level jobs or benefited their children. Copyright Springer Science+Business Media, LLC 2007

Suggested Citation

  • Gregory Acs & Eric Toder, 2007. "Should we subsidize work? Welfare reform, the earned income tax credit and optimal transfers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(3), pages 327-343, June.
  • Handle: RePEc:kap:itaxpf:v:14:y:2007:i:3:p:327-343
    DOI: 10.1007/s10797-006-9010-z
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s10797-006-9010-z
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Dickert-Conlin, Stacy & Houser, Scott, 2002. "EITC and Marriage," National Tax Journal, National Tax Association;National Tax Journal, vol. 55(1), pages 25-40, March.
    2. Jeffrey Grogger, 2003. "The Effects of Time Limits, the EITC, and Other Policy Changes on Welfare Use, Work, and Income among Female-Headed Families," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 394-408, May.
    3. Keane, Michael & Moffitt, Robert, 1998. "A Structural Model of Multiple Welfare Program Participation and Labor Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 553-589, August.
    4. Louis Kaplow, 2007. "Optimal income transfers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(3), pages 295-325, June.
    5. Saul D. Hoffman & Laurence S. Seidman, 2003. "Helping Working Families: The Earned Income Tax Credit," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number hwf, November.
    6. Nada Eissa & Jeffrey B. Liebman, 1996. "Labor Supply Response to the Earned Income Tax Credit," The Quarterly Journal of Economics, Oxford University Press, vol. 111(2), pages 605-637.
    7. Kaplow, Louis, 1990. "Optimal taxation with costly enforcement and evasion," Journal of Public Economics, Elsevier, vol. 43(2), pages 221-236, November.
    8. Emmanuel Saez, 2002. "Optimal Income Transfer Programs: Intensive versus Extensive Labor Supply Responses," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 1039-1073.
    9. Schoeni, R.F. & Blank, R.M., 2000. "What Has Welfare Reform Accomplished? Impacts on Welfare Participation, Employment, Income, Poverty, and Family Structure," Papers 00-02, RAND - Labor and Population Program.
    10. 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.
    11. Bruce D. Meyer & Dan T. Rosenbaum, 1999. "Making Single Mothers Work: Recent Tax and Welfare Policy and its Effects," JCPR Working Papers 152, Northwestern University/University of Chicago Joint Center for Poverty Research.
    12. Diamond, P., 1980. "Income taxation with fixed hours of work," Journal of Public Economics, Elsevier, vol. 13(1), pages 101-110, February.
    13. Robert A. Moffitt, 2003. "Means-Tested Transfer Programs in the United States," NBER Books, National Bureau of Economic Research, Inc, number moff03-1, January.
    14. Gregory Acs & Pamela Loprest, 2004. "Leaving Welfare: Employment and Well-Being of Families that Left WElfare in the Post-Entitlement Age," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number lw, November.
    15. Dickert-Conlin, Stacy & Houser, Scott, 2002. "EITC and Marriage," National Tax Journal, National Tax Association, vol. 55(N. 1), pages 25-40, March.
    16. Rebecca M. Blank, 2002. "Evaluating Welfare Reform in the United States," Journal of Economic Literature, American Economic Association, vol. 40(4), pages 1105-1166, December.
    17. Slemrod, Joel, 1990. "Optimal Taxation and Optimal Tax Systems," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 157-178, Winter.
    18. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
    19. Neeraj Kaushal & Robert Kaestner, 2001. "From Welfare to Work: Has Welfare Reform Worked?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 20(4), pages 699-719.
    20. David T. Ellwood & Jeffrey B. Liebman, 2001. "The Middle-Class Parent Penalty: Child Benefits in the U.S. Tax Code," NBER Chapters,in: Tax Policy and the Economy, Volume 15, pages 1-40 National Bureau of Economic Research, Inc.
    21. Robert A. Moffitt, 1999. "The Effect of Pre-PRWORA Waivers on AFDC Caseloads and Female Earnings, Income, and Labor Force Behavior," JCPR Working Papers 89, Northwestern University/University of Chicago Joint Center for Poverty Research.
    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


    Cited by:

    1. Austin Nichols & Jesse Rothstein, 2015. "The Earned Income Tax Credit," NBER Chapters,in: Economics of Means-Tested Transfer Programs in the United States, volume 1, pages 137-218 National Bureau of Economic Research, Inc.
    2. Guyonne Kalb & Thor O. Thoresen, 2007. "The Case for Labour Supply Incentives: A Comparison of Family Policies in Australia and Norway," Melbourne Institute Working Paper Series wp2007n27, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    3. Miyake, Yusuke & Yasuoka, Masaya, 2016. "Subsidy Policy and Elderly Labor," MPRA Paper 75704, University Library of Munich, Germany.
    4. Guyonne Kalb & Thor Thoresen, 2010. "A comparison of family policy designs of Australia and Norway using microsimulation models," Review of Economics of the Household, Springer, vol. 8(2), pages 255-287, June.
    5. Watanabe, Minoru & Yasuoka, Masaya, 2017. "Elderly Labor and Unemployment," MPRA Paper 82669, University Library of Munich, Germany.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:itaxpf:v:14:y:2007:i:3:p:327-343. 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: (Sonal Shukla) or (Rebekah McClure). General contact details of provider: http://www.springer.com .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.