IDEAS home Printed from https://ideas.repec.org/p/wil/wileco/2009-07.html
   My bibliography  Save this paper

The Earned Income Tax Credit and Reported Self-Employment Income

Author

Abstract

The Earned Income Tax Credit subsidizes earnings from both the wage sector and the self-employment sector. This paper uses tax return data to investigate how the EITC affects the reporting of self-employment income to the IRS. A difference-in-difference strategy is used, considering three expansions in the EITC and comparing changes across filers with and without children. The expansions are predicted to increase the reporting of self-employment income for those in the phase-in region of the EITC and to reduce the reporting of self-employment income for those in the phase-out region. Among the lowest-income filers, the 1994 EITC expansion is associated with a significant increase in the probability of reporting positive self-employment income, equal to 3.2 percentage points for unmarried filers and 4.1 percentage points for married filers.

Suggested Citation

  • Sara LaLumia, 2009. "The Earned Income Tax Credit and Reported Self-Employment Income," Department of Economics Working Papers 2009-07, Department of Economics, Williams College.
  • Handle: RePEc:wil:wileco:2009-07
    as

    Download full text from publisher

    File URL: http://web.williams.edu/Economics/wp/LaLumiaEITCandSelfEmployment.pdf
    File Function: Full text
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    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. Bruce, Donald, 2000. "Effects of the United States tax system on transitions into self-employment," Labour Economics, Elsevier, vol. 7(5), pages 545-574, September.
    3. 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.
    4. Nzinga Broussard & Ralph Chami & Gregory Hess, 2015. "(Why) Do self-employed parents have more children?," Review of Economics of the Household, Springer, vol. 13(2), pages 297-321, June.
    5. Jeffrey B. Liebman, 2000. "Who are the Ineligible EITC Recipients?," JCPR Working Papers 131, Northwestern University/University of Chicago Joint Center for Poverty Research.
    6. Raj Chetty & Emmanuel Saez, 2013. "Teaching the Tax Code: Earnings Responses to an Experiment with EITC Recipients," American Economic Journal: Applied Economics, American Economic Association, vol. 5(1), pages 1-31, January.
    7. Blau, David M, 1987. "A Time-Series Analysis of Self-employment in the United State," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 445-467, June.
    8. Slemrod, Joel, et al, 1997. "April 15 Syndrome," Economic Inquiry, Western Economic Association International, vol. 35(4), pages 695-709, October.
    9. Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
    10. Eissa, Nada & Hoynes, Hilary Williamson, 2004. "Taxes and the labor market participation of married couples: the earned income tax credit," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1931-1958, August.
    11. R. Glenn Hubbard & William M. Gentry, 2000. "Tax Policy and Entrepreneurial Entry," American Economic Review, American Economic Association, vol. 90(2), pages 283-287, May.
    12. Barrow, Lisa & McGranahan, Leslie, 2000. "The Effects of the Earned Income Credit on the Seasonality of Household Expenditures," National Tax Journal, National Tax Association, vol. 53(n. 4), pages 1211-44, December.
    13. Yitzhaki, Shlomo, 1974. "Income tax evasion: A theoretical analysis," Journal of Public Economics, Elsevier, vol. 3(2), pages 201-202, May.
    14. Julie Berry Cullen & Roger Gordon, 2006. "Tax Reform and Entrepreneurial Activity," NBER Chapters,in: Tax Policy and the Economy, Volume 20, pages 41-72 National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

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


    Cited by:

    1. Singleton, Perry, 2011. "The Effect of Taxes on Taxable Earnings: Evidence From the 2001 and Related U.S. Federal Tax Acts," National Tax Journal, National Tax Association;National Tax Journal, vol. 64(2), pages 323-351, June.
    2. Buhlmann, Florian & Elsner, Benjamin & Peichl, Andreas, 2017. "Tax refunds and income manipulation evidence from the EITC," ZEW Discussion Papers 17-060, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    3. Julie Shi, 2016. "Income Responses to Health Insurance Subsidies: Evidence from Massachusetts," American Journal of Health Economics, MIT Press, vol. 2(1), pages 96-124, January.
    4. Emmanuel Saez, 2010. "Do Taxpayers Bunch at Kink Points?," American Economic Journal: Economic Policy, American Economic Association, vol. 2(3), pages 180-212, August.
    5. Bergolo, Marcelo & Cruces, Guillermo, 2016. "The Anatomy of Behavioral Responses to Social Assistance When Informal Employment Is High," IZA Discussion Papers 10197, Institute for the Study of Labor (IZA).
    6. Gunter, Samara, 2013. "State Earned Income Tax Credits and Participation in Regular and Informal Work," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(1), pages 33-62, March.
    7. repec:pri:crcwel:wp11-03-ff is not listed on IDEAS

    More about this item

    Keywords

    EITC; self-employment;

    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

    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:wil:wileco:2009-07. 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: (Stephen Sheppard). General contact details of provider: http://edirc.repec.org/data/edwilus.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 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.

    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.