Working Paper: NBER ID: w22080
Authors: Hilary Hoynes; Jesse Rothstein
Abstract: In this paper, we review the most prominent provision of the federal income tax code that targets low-income tax filers, the Earned Income Tax Credit (EITC), as well as the structurally similar Child Tax Credit (CTC). We frame the paper around what we see as the programs’ goals: distributional, promoting work, and limiting administrative and compliance costs. We review what is known about program impacts and distributional consequences under current law, drawing on simulations from the Tax Policy Center. We conclude that the EITC is quite successful in meeting its three goals. In contrast, most of the benefits of the CTC go to higher income households. In addition to analyzing current law, we assess possible reforms that would reach groups – for the EITC, those without children; for the CTC, those with very low earnings – who are largely missed under current policy.
Keywords: Earned Income Tax Credit; Child Tax Credit; Low-Income Families; Tax Policy; Labor Supply
JEL Codes: H24; H53; I38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| EITC (H26) | labor force participation rates of single mothers (J22) |
| EITC (H26) | employment outcomes (J68) |
| EITC (H26) | after-tax income (H24) |
| CTC (C24) | income distribution (D31) |
| EITC (H26) | poverty reduction (I32) |