IDEAS home Printed from https://ideas.repec.org/p/boe/boeewp/0903.html

The earned income tax credit: targeting the poor but crowding out wealth

Author

Listed:
  • Maren Froemel

    (Bank of England)

  • Charles Gottlieb

    (University of St Gallen)

Abstract

This paper quantifies the individual, aggregate and welfare effects of the Earned Income Tax Credit (EITC) in the United States. In particular, we analyse the labour supply and saving responses to changes in tax credit generosity and their implications for prices and welfare. Our results show that the EITC is a subsidy on labour income and a tax on savings. An increase in EITC generosity raises labour force participation, reduces savings for many and provides insurance to working poor households. The EITC reduces earnings inequality but increases the skill premium and wealth inequality. A 10% increase in tax credit generosity increases welfare by 0.31% and benefits the majority of the population.

Suggested Citation

  • Maren Froemel & Charles Gottlieb, 2021. "The earned income tax credit: targeting the poor but crowding out wealth," Bank of England working papers 903, Bank of England.
    • Handle: RePEc:boe:boeewp:0903
    as

    Download full text from publisher

    File URL: https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2021/the-earned-income-tax-credit-targeting-the-poor-but-crowding-out-wealth.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The Earned Income Tax Credit: Targeting the Poor but Crowding Out Wealth
      by Christian Zimmermann in NEP-DGE blog on 2016-10-14 00:17:26

    Citations

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


    Cited by:

    1. repec:cam:camjip:2205 is not listed on IDEAS
    2. Watson, C. Luke, 2021. "the General Equilibrium Incidence of the Earned Income Tax Credit," SocArXiv 8n3ag, Center for Open Science.
    3. Hasumi, Ryo & Takano, Tetsuaki, 2025. "Comparing the earned income tax credit and universal basic income in a heterogeneous agent model," Structural Change and Economic Dynamics, Elsevier, vol. 73(C), pages 238-247.
    4. Rauh, Christopher & Rodrigues dos Santos, Marcelo, 2022. "How do transfers and universal basic income impact the labor market and inequality?," CEPR Discussion Papers 16993, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    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:boe:boeewp:0903. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Research (email available below). General contact details of provider: https://edirc.repec.org/data/boegvuk.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.