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

Author

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  • Katie Fitzpatrick
  • Jeffrey Thompson

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 a 10 percentage point increase in labor force participation for single mothers in the lowest cost areas but no discernable 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 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

  • Katie Fitzpatrick & Jeffrey Thompson, 2009. "The Interaction of Metropolitan Cost-of-living & the Federal Earned Income Tax Credit: One Size Fits All?," Working Papers wp204, Political Economy Research Institute, University of Massachusetts at Amherst.
  • Handle: RePEc:uma:periwp:wp204
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    References listed on IDEAS

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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. Watson, C. Luke, 2021. "the General Equilibrium Incidence of the Earned Income Tax Credit," SocArXiv 8n3ag, Center for Open Science.
    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.

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    More about this item

    Keywords

    EITC; Cost-of-Living; Tax reform; Labor supply;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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