NATIONAL BUREAU OF ECONOMIC RESEARCH
Department of the Treasury
NBER Working Papers and Publications
|July 2015||Effective Policy for Reducing Inequality? The Earned Income Tax Credit and the Distribution of Income|
with Hilary W. Hoynes: w21340
In this paper, we examine the effect of the EITC on the employment and income of single mothers with children. We provide the first comprehensive estimates of this central safety net policy on the full distribution of after-tax and transfer income. We use a quasi-experiment approach, using variation in generosity due to policy expansions across tax years and family sizes. Our results show that a policy-induced $1000 increase in the EITC leads to a 7.3 percentage point increase in employment and a 9.4 percentage point reduction in the share of families with after-tax and transfer income below 100% poverty. Event study estimates show no evidence of differential pre-trends, providing strong evidence in support of our research design. We find that the income increasing effects of the EITC are ...