The Optimal Long-Run Earned Income Tax Credit

Regev, E. and M. Strawczynski (2021), "The optimal long-run EITC", International Journal of Economic Theory, 17(3), 284-308.

32 Pages Posted: 7 Nov 2015 Last revised: 23 May 2023

See all articles by Eitan Regev

Eitan Regev

Hebrew University of Jerusalem - Department of Economics; Taub Center

Michel Strawczynski

Hebrew University of Jerusalem - Eliezer Kaplan School of Economics and Social Sciences; Hebrew University of Jerusalem _ Public Policy

Date Written: November 25, 2018

Abstract

Governments implementing an Earned Income Tax Credit (EITC) aim at increasing Working Poor’s propensity to work, in order to alleviate poverty. If this goal is attained in the long-run: shall the optimal EITC increase or decrease? We deal with this question using simulations with endogenous participation and intensive margin elasticities. When the participation elasticity is endogenous, the optimal long-run EITC decreases. However, if we add endogenous intensive margin elasticity, the optimal EITC increases because the Working Poor works harder, making the EITC cheaper at the margin. The optimal increasing long-run EITC pattern holds also with a constant elasticity of labor.

Keywords: Earned Income Tax Credit, From Welfare to Work

JEL Classification: H21, H24

Suggested Citation

Regev, Eitan and Strawczynski, Michel, The Optimal Long-Run Earned Income Tax Credit (November 25, 2018). Regev, E. and M. Strawczynski (2021), "The optimal long-run EITC", International Journal of Economic Theory, 17(3), 284-308., Available at SSRN: https://ssrn.com/abstract=2687531 or http://dx.doi.org/10.2139/ssrn.2687531

Eitan Regev

Hebrew University of Jerusalem - Department of Economics ( email )

Mount Scopus
Jerusalem, 91905
Israel

Taub Center ( email )

15 Ha'ari Street
Jerusalem
Israel

Michel Strawczynski (Contact Author)

Hebrew University of Jerusalem - Eliezer Kaplan School of Economics and Social Sciences ( email )

Mount Scopus
Jerusalem, 9190501
Israel

HOME PAGE: http://michelstrawczynski.huji.ac.il/

Hebrew University of Jerusalem _ Public Policy ( email )

School of Public Policy
Jerusalem
Israel
972-2-5881531 (Phone)

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