Who Benefits from the Earned Income Tax Credit? Incidence Among Recipients, Coworkers and Firms
45 Pages Posted: 29 Jun 2010
There are 2 versions of this paper
Who Benefits from the Earned Income Tax Credit? Incidence Among Recipients, Coworkers and Firms
Abstract
How are hourly wages affected by the Earned Income Tax Credit? Using variation in state EITC supplements, I find that a 10 percent increase in the generosity of the EITC is associated with a 5 percent fall in the wages of high school dropouts and a 2 percent fall in the wages of those with only a high school diploma, while having no effect on the wages of college graduates. Given the large increase in labor supply induced by the EITC, this is consistent with most reasonable estimates of the elasticity of labor demand. Although workers with children receive a much larger EITC than childless workers, and the effect of the credit on labor force participation is larger for those with children, the hourly wages of both groups are similarly affected by an EITC increase. As a check on this strategy, I also use federal variation in the EITC across gender-age-education groups, and find that those demographic groups that received the largest EITC increases also experienced a drop in their hourly wages, relative to other groups.
Keywords: taxation incidence, labor supply, simulated instrument
JEL Classification: H22, H23, J22, J30
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Labor Supply Response to the Earned Income Tax Credit
By Nada Eissa and Jeffrey B. Liebman
-
Welfare, the Earned Income Tax Credit, and the Labor Supply of Single Mothers
By Bruce D. Meyer and Dan T. Rosenbaum
-
By V. Joseph Hotz and John Karl Scholz
-
The Earned Income Tax Credit and the Labor Supply of Married Couples
-
Financial Incentives for Increasing Work and Income Among Low-Income Families
By Rebecca M. Blank, David Card, ...
-
Making Single Mothers Work: Recent Tax and Welfare Policy and its Effects
By Bruce D. Meyer and Dan T. Rosenbaum