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The Interaction of Metropolitan Cost-of-Living and the Federal Earned Income Tax Credit: One Size Fits All?

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  • Fitzpatrick, Katie
  • Thompson, Jeffrey P.

Abstract

This paper explores the interaction between the federal Earned Income Tax Credit (EITC) and the cost-of-living faced by single mothers. After the 1993 EITC expansion, we identify up to an 8 percentage point increase in labor force participation for single mothers in the lowest cost areas but no discernible response in the highest cost areas. We conclude that the EITC’s welfare-enhancing properties are undermined by the interaction of the program’s fixed national rules and geographic variation in wages and the cost-of-living. In addition, our findings suggest that the EITC does little to reduce joblessness in many of the nation’s largest cities.

Suggested Citation

  • Fitzpatrick, Katie & Thompson, Jeffrey P., 2010. "The Interaction of Metropolitan Cost-of-Living and the Federal Earned Income Tax Credit: One Size Fits All?," National Tax Journal, National Tax Association, vol. 63(3), pages 419-445, September.
  • Handle: RePEc:ntj:journl:v:63:y:2010:i:3:p:419-45
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    Download Restriction: Access to most recent volumes (current and past two years) is restricted to subscribers and members of the National Tax Association.

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    Cited by:

    1. Peter McHenry & Melissa McInerney, 2015. "Estimating Hispanic-White Wage Gaps Among Women: The Importance of Controlling for Cost of Living," Journal of Labor Research, Springer, vol. 36(3), pages 249-273, September.
    2. Berger, Lawrence M. & Collins, J. Michael & Smeeding, Timothy M., 2015. "Exiting or retaining owner-occupied housing in the United States 1999–2009: How do social programs matter?," Children and Youth Services Review, Elsevier, vol. 57(C), pages 112-126.
    3. Peter McHenry & Melissa McInerney, 2014. "The Importance of Cost of Living and Education in Estimates of the Conditional Wage Gap Between Black and White Women," Journal of Human Resources, University of Wisconsin Press, vol. 49(3), pages 695-722.
    4. Melanie Guldi & Lucie Schmidt, 2017. "Taxes, Transfers, and Women’s Labor Supply in the United States," Working Papers 2017-01, University of Central Florida, Department of Economics.

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