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Repairing the safety net: Is the EITC the right patch?

  • Edward J. Bird

    (W. Allen Wallis Institute of Political Economy, University of Rochester, Rochester, New York)

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    Using data from the Michigan Panel Study of Income Dynamics, this article estimates the impact of the Earned Income Tax Credit (EITC) on economic risk. Risk is measured through the variance of full income (income holding labor supply constant). The results show that the EITC significantly reduces economic risk, but its effects are weaker dollar for dollar than traditional means-tested programs like Food Stamps. The difference is not statistically significant, however. Moreover, for many middle-class people, the risk-reduction benefits of the EITC exceed the tax burden it imposes. This is less true of means-tested transfers. These results are significant for the politics of antipoverty policy. They show that a real-world antipoverty program can generate enough middle-class economic security to build for itself a solid base of political support.

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    Article provided by John Wiley & Sons, Ltd. in its journal Journal of Policy Analysis and Management.

    Volume (Year): 15 (1996)
    Issue (Month): 1 ()
    Pages: 1-31

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    Handle: RePEc:wly:jpamgt:v:15:y:1996:i:1:p:1-31
    Contact details of provider: Web page: http://www3.interscience.wiley.com/journal/34787/home

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    1. Ballard, Charles L, 1988. "The Marginal Efficiency Cost of Redistribution," American Economic Review, American Economic Association, vol. 78(5), pages 1019-33, December.
    2. Saul D. Hoffman & Laurence S. Seidman, 1990. "The Earned Income Tax Credit," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number eitc, November.
    3. Feldstein, Martin S, 1973. "The Welfare Loss of Excess Health Insurance," Journal of Political Economy, University of Chicago Press, vol. 81(2), pages 251-80, Part I, M.
    4. Edward M. Gramlich & Michael J. Wolkoff, 1979. "A Procedure for Evaluating Income Distribution Policies," Journal of Human Resources, University of Wisconsin Press, vol. 14(3), pages 319-350.
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