IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/5158.html
   My bibliography  Save this paper

Labor Supply Response to the Earned Income Tax Credit

Author

Listed:
  • Nada Eissa
  • Jeffrey B. Liebman

Abstract

In a series of major expansions starting in 1987, the earned income tax credit (EITC) has become a central part of the federal government's anti-poverty strategy. In this paper, we examine the impact of the Tax Reform Act of 1986 (TRA86), which included an expansion of the EITC, on labor force participation and hours of work. The expansion of the credit affected an easily identifiable group, single women with children, but is predicted to have had no effect on another group, single women without children. Other features of TRA86, such as the increase in the value of dependent exemptions and the large increase in the standard deduction for head of household filers, are predicted by economic theory to have reinforced the impact of the EITC on the relative labor supply outcomes of single women with and without children. We therefore compare the change in labor supply of single women with children to the change in labor supply of single women without children. We find that between 1984-1986 and 1988-1989 single women with children increased their labor force participation by 1.4 percentage points (from a base of 73.1 percent) relative to single women without children. We explore a number of possible explanations for this finding and conclude that the 1987 expansion of the EITC and the other provisions of TRA86 are the most likely explanations. We find no effect of the EITC expansion on the hours of work of single women with children who were already in the labor force. Compared to other elements of the welfare system, the EITC appears to produce little distortion of work incentives.

Suggested Citation

  • Nada Eissa & Jeffrey B. Liebman, 1995. "Labor Supply Response to the Earned Income Tax Credit," NBER Working Papers 5158, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:5158
    Note: PE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w5158.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Holtzblatt, Janet & McCubbin, Janet & Gillette, Robert, 1994. "Promoting Work Through the EITC," National Tax Journal, National Tax Association, vol. 47(3), pages 591-607, September.
    2. Slemrod, Joel, 1990. "Optimal Taxation and Optimal Tax Systems," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 157-178, Winter.
    3. J. K. Scholz, "undated". "The earned income tax credit: Participation, compliance, and antipoverty effectiveness," Institute for Research on Poverty Discussion Papers 1020-93, University of Wisconsin Institute for Research on Poverty.
    4. 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, January-J.
    5. Zabel, Jeffrey E, 1993. "The Relationship between Hours of Work and Labor Force Participation in Four Models of Labor Supply Behavior," Journal of Labor Economics, University of Chicago Press, vol. 11(2), pages 387-416, April.
    6. Holtzblatt, Janet & McCubbin, Janet & Gillette, Robert, 1994. "Promoting Work Through the EITC," National Tax Journal, National Tax Association;National Tax Journal, vol. 47(3), pages 591-607, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Michael Keen, 1997. "Peculiar institutions: A British perspective on tax policy in the United States," Fiscal Studies, Institute for Fiscal Studies, vol. 18(4), pages 371-400, November.
    2. Stacy Dickert-Conlin & Douglas Holtz-Eakin, 1999. "Employee-Based versus Employer-Based Subsidies to Low-Wage Workers: A Public Finance Perspective," JCPR Working Papers 79, Northwestern University/University of Chicago Joint Center for Poverty Research.
    3. 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.
    4. Stacy Dickert-Conlin & Douglas Holtz-Eakin, 1999. "Helping the Working Poor: Employer- vs. Employee-Based Subsidies," Center for Policy Research Policy Briefs 14, Center for Policy Research, Maxwell School, Syracuse University.
    5. 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.
    6. R. V. Burkhauser & K. A. Couch & A. J. Glenn, "undated". "Public policies for the working poor: The earned income tax credit versus minimum wage legislation," Institute for Research on Poverty Discussion Papers 1074-95, University of Wisconsin Institute for Research on Poverty.
    7. 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.
    8. Nuria Badenes Plá & Julio López Laborda, 2002. "Efectos sobre la renta disponible y el bienestar de la deducción en el IRPF por rentas ganadas," Hacienda Pública Española / Review of Public Economics, IEF, vol. 160(1), pages 103-120, march.
    9. Wolfgang Ochel, 2000. "Employment-conditional tax credit and benefit systems," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 1(3), pages 35-41, October.
    10. Wolfgang Ochel, 2002. "Welfare to Work in the US: A Model for Germany?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 59(1), pages 91-119, February.
    11. Edward J. Bird, 1996. "Repairing the safety net: Is the EITC the right patch?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 15(1), pages 1-31.
    12. Nicole Simpson & Devin Reilly & Kartik Athreya, 2010. "The Earned Income Tax Credit: Insurance Without Disincentives?," 2010 Meeting Papers 1103, Society for Economic Dynamics.
    13. Alvaro Pereira & João Jalles & Martin Andresen, 2012. "Structural change and foreign direct investment: globalization and regional economic integration," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 11(1), pages 35-82, April.
    14. Kaplanoglou, Georgia & Newbery, David Michael, 2003. "Indirect Taxation in Greece: Evaluation and Possible Reform," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(5), pages 511-533, September.
    15. Donald Bruce & William Fox & Matthew Murray, 2003. "To Tax Or Not To Tax? The Case Of Electronic Commerce," Contemporary Economic Policy, Western Economic Association International, vol. 21(1), pages 25-40, January.
    16. Louis Kaplow, 2011. "An Optimal Tax System," NBER Working Papers 17214, National Bureau of Economic Research, Inc.
    17. Ravi Kanbur & Tuuli Paukkeri & Jukka Pirttilä & Matti Tuomala, 2018. "Optimal taxation and public provision for poverty reduction," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(1), pages 64-98, February.
    18. Timothy M. Smeeding & Katherin Ross Phillips & Michael O'Connor, 1999. "The EITC: Expectation, Knowledge, Use, and Economic and Social Mobility," Center for Policy Research Working Papers 13, Center for Policy Research, Maxwell School, Syracuse University.
    19. Ray, Ranjan, 1993. "Optimal Demogrants and Taxes in a Federal Welfare State," Journal of Population Economics, Springer;European Society for Population Economics, vol. 6(3), pages 199-214.
    20. Gian Maria Milesi-Ferretti & Nouriel Roubini, 1995. "Growth Effects of Income and Consumption Taxes: Positive and Normative Analysis," Working Papers 95-18, New York University, Leonard N. Stern School of Business, Department of Economics.

    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty

    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:nbr:nberwo:5158. 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: . General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    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 bibliographic 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.

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

    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.