Working Paper: NBER ID: w26405
Authors: Henrik Kleven
Abstract: A strong consensus posits that the Earned Income Tax Credit (EITC) has had sizable effects on extensive margin labor supply, especially for single mothers. This paper reappraises the difference-in-differences and event study approaches that underpin much of this consensus. The paper investigates every EITC reform at the state and federal level since the inception of the policy. All reforms are analyzed in an event study framework and a comprehensive analysis of model uncertainty is presented. Apart from the federal 1993 reform, EITC expansions are not associated with any clear and robust effects on employment. Treatment impact estimates from about 500 event studies are symmetrically distributed around zero. Specifications with large elasticities are outliers in the distribution. The 1993 reform, on the other hand, is associated with large employment increases for single mothers. Based on a number of different analyses, the paper shows that these increases align more closely with confounding effects from welfare reform and the macroeconomy than with the EITC. Overall, difference-in-differences and event study analyses of EITC reforms are fragile to specification choices and do not support robustly large effects.
Keywords: EITC; Labor Supply; Single Mothers; Welfare Reform
JEL Codes: H20; H24; H31; J20; J21; J22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| EITC reforms (H26) | labor supply (J20) |
| 1993 EITC reform (H24) | employment rates among single mothers (J12) |
| welfare reforms (I38) | employment changes (J63) |
| macroeconomic conditions (E66) | employment changes (J63) |
| EITC impacts (H31) | employment rates (J68) |
| number of children (J13) | EITC employment effects (H31) |