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Labor Supply and Participation Effects of the Earned Income Tax Credit: Evidence form the National Survey of America's Families and Wisconsin's Supplemental Benefit for Families with Three Children

Abstract

We use the National Survey of America's Families to examine the labor market consequences of the Earned Income Tax Credit (EITC) by comparing labor market behavior of eligible parents in Wisconsin, which supplements the federal EITC for families with three children, to the labor market behavior of otherwise similar parents in states that do not supplement the federal tax credit. Most previous empirical studies have either relied on changes in the overall level of EITC benefits over time, as in the 1987 and 1993 program expansions, or have extrapolated from measured labor supply responses to other tax and benefit programs, assuming that responses to those programs will be similar to EITC responses. By contrast, our cross-state comparison examines a larger difference in EITC benefits, and one that can be directly attributed to the EITC program rather than to related programs. For example, a three-child family in Wisconsin is eligible for an extra 17.2 percent tax credit (43 percent of the 40 percent federal credit) above that received by a comparable family in a state with no supplemental EITC -a difference larger than the entire federal EITC during its expansion in 1987 from 11 to 14 percent.

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Paper provided by Georgetown University, Department of Economics in its series Working Papers with number gueconwpa~02-02-08.

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Date of creation: 08 Feb 2002
Handle: RePEc:geo:guwopa:gueconwpa~02-02-08
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Georgetown University Department of Economics Washington, DC 20057-1036

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Order Information: Postal: Roger Lagunoff Professor of Economics Georgetown University Department of Economics Washington, DC 20057-1036
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Keywords: Earned income tax credit; National Survey of America's Families; labor force participation.;

Find related papers by JEL classification:

  • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
  • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
  • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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  1. Bruce D. Meyer & Dan T. Rosenbaum, 2001. "Welfare, the Earned Income Tax Credit, and the Labor Supply of Single Mothers," The Quarterly Journal of Economics, Oxford University Press, vol. 116(3), pages 1063-1114.
  2. Stacy Dickert & Scott Houser & John Karl Scholz, 1995. "The Earned Income Tax Credit and Transfer Programs: A Study of Labor Market and Program Participation," NBER Chapters,in: Tax Policy and the Economy, Volume 9, pages 1-50 National Bureau of Economic Research, Inc.
  3. Scholz, John Karl, 1994. "The Earned Income Credit: Participation, Compliance, and Antipoverty Effectiveness," National Tax Journal, National Tax Association, vol. 47(1), pages 63-87, March.
  4. N. Eissa & H. W. Hoynes, "undated". "The Earned Income Tax Credit and the Labor Supply of Married Couples," Institute for Research on Poverty Discussion Papers 1194-99, University of Wisconsin Institute for Research on Poverty.
  5. 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.
  6. 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.
  7. 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.
  8. Ellwood, David T., 2000. "The Impact of the Earned Income Tax Credit and Social Policy Reforms on Work, Marriage, and Living Arrangements," National Tax Journal, National Tax Association, vol. 53(n. 4), pages 1063-1106, December.
  9. Scholz, John Karl, 1994. "The Earned Income Credit: Participation, Compliance, and Antipoverty Effectiveness," National Tax Journal, National Tax Association, vol. 47(1), pages 63-87, March.
  10. Ellwood, David T., 2000. "The Impact of the Earned Income Tax Credit and Social Policy Reforms on Work, Marriage, and Living Arrangements," National Tax Journal, National Tax Association, vol. 53(4), pages 1063-1106, December.
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Cited by:

  1. V. Joseph Hotz & John Karl Scholz, 2006. "Examining the Effect of the Earned Income Tax Credit on the Labor Market Participation of Families on Welfare," NBER Working Papers 11968, National Bureau of Economic Research, Inc.

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