The Earned Income Tax Credit (EITC)

Austin Nichols, Jesse Rothstein

NBER Working Paper No. 21211
Issued in May 2015
NBER Program(s):Labor Studies, Public Economics

We review research on the Earned Income Tax Credit (EITC), focusing on work appearing since the Hotz and Scholz (2003) review. Recent work has confirmed earlier findings that labor supply effects are positive for single mothers, smaller and negative for married mothers, and essentially nonexistent for men. Where earlier estimates indicated that all responses were on the extensive margin, some recent studies find evidence of non-zero, but small, intensive margin effects. We also review research on the incidence of the credit, suggesting that employers capture some of the program benefits through lower wages; on the large impact of the program on poverty rates and on children’s outcomes; and on families’ apparent preferences for lump-sum refunds over smaller payments distributed throughout the year. We present new evidence regarding the accuracy of EITC imputations in the Current Population Survey. We discuss proposals for reform, including a more generous childless credit, and argue that the EITC may be complementary to the minimum wage, rather than an alternative.

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Document Object Identifier (DOI): 10.3386/w21211

Published: The Earned Income Tax Credit, Austin Nichols, Jesse Rothstein. in Economics of Means-Tested Transfer Programs in the United States, Volume 1, Moffitt. 2016

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