Working Paper: NBER ID: w21340
Authors: Hilary W. Hoynes; Ankur J. Patel
Abstract: 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 concentrated between 75% and 150% of income-to-poverty with little effect at the lowest income levels (50% poverty and below) and at levels of 250% of poverty and higher. By capturing the indirect effects of the credit on earnings, our results show that static calculations of the anti-poverty effects of the EITC (such as those released based on the Supplemental Poverty Measure, Short 2014) may be underestimated by as much as 50 percent.
Keywords: Earned Income Tax Credit; EITC; Income Distribution; Poverty; Employment
JEL Codes: H2; I38; J2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| policy-induced $1000 increase in the EITC (H31) | employment among single mothers with children (J12) |
| 1993 expansion of the EITC (H31) | share of families headed by single mothers with after-tax and transfer income below the poverty threshold (I32) |
| policy-induced $1000 increase in the EITC (H31) | after-tax and transfer income among single mothers with children (H24) |
| policy-induced $1000 increase in the EITC (H31) | income among single mothers with children between 75% and 150% of the poverty line (J12) |
| indirect effects on earnings from the EITC (H31) | static calculations of the EITC's antipoverty effects (H53) |