Full Citation
Title: Are In-Work Tax Credits Effective in the Presence of Generous Public Assistance? Evidence from the 1975 Earned Income Tax Credit
Citation Type: Conference Paper
Publication Year: 2015
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DOI: 10.2307/90023213
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Abstract: It is well known that the Earned Income Tax Credit (EITC) expansions in the 1980s and 1990s had a positive impact on female employment. In contrast, the original 1975 EITC has commonly been described as a modest program that did not keep up with inflation; furthermore, during this time public assistance was twice as generous as it would be two decades later. For these reasons, there has been a general assumption that the incentives of the 1975 EITC were insufficient to induce much of a female employment response. In this paper I find strong evidence that the original EITC did have a positive and permanent impact on female employment. Using samples from two different populations of women, I use difference in differences to show that EITC-eligible women increased their relative employment by 3 to 5 percentage points (or about 5% to 8%). These findings are robust to triple differences analysis, model choice, state-specific time trends, choice of sample years, reweighting, and potentially endogenous fertility responses to the EITC. Subgroup analysis shows that this employment response varied by education, cost of living, race, age, marital status, and spousal income in a manner consistent with a standard labor supply model. The largest responses came from subgroups of women more likely to be EITC-eligible and women eligible for more EITC benefits. As far as I am aware, this is the first paper to empirically examine the introduction of the EITC and its first decade of existence.
Url: https://www.jstor.org/stable/90023213
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Authors: Bastian, Jacob
Conference Name: Proceedings. Annual Conference on Taxation and Minutes of the Annual Meeting of the National Tax Association
Publisher Location:
Data Collections: IPUMS USA
Topics: Other, Poverty and Welfare
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