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Title: Who Benefits from the Earned Income Tax Credit? Incidence among Recipients, Coworkers and Firms

Citation Type: Journal Article

Publication Year: 2010

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Abstract: How are hourly wages affected by the Earned Income Tax Credit? Using variation in stateEITC supplements, I find that a 10 percent increase in the generosity of the EITC is associatedwith a 5 percent fall in the wages of high school dropouts and a 2 percent fall in the wages of thosewith only a high school diploma, while having no effect on the wages of college graduates. Giventhe large increase in labor supply induced by the EITC, this is consistent with most reasonableestimates of the elasticity of labor demand. Although workers with children receive a much largerEITC than childless workers, and the effect of the credit on labor force participation is larger forthose with children, the hourly wages of both groups are similarly affected by an EITC increase.As a check on this strategy, I also use federal variation in the EITC across gender-age-educationgroups, and find that those demographic groups that received the largest EITC increases also experienceda drop in their hourly wages, relative to other groups.

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Authors: Leigh, Andrew

Periodical (Full): The B.E.Journal of Economic Analysis & Policy

Issue: 1

Volume: 10

Pages: 45-89

Data Collections: IPUMS USA

Topics: Labor Force and Occupational Structure

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