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The Earned Income Tax Credit

The Earned Income Tax Credit

(p.137) 2 The Earned Income Tax Credit
Economics of Means-Tested Transfer Programs in the United States, Volume I
Austin NicholsJesse Rothstein
University of Chicago Press

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.

Keywords:   Earned Income Tax Credit, Child Tax Credit, tax credits, in-work safety net, welfare, incidence, participation, work

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