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Title: The General Equilibrium Incidence of the Earned Income Tax Credit

Citation Type: Miscellaneous

Publication Year: 2020

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Abstract: The Earned Income Tax Credit is a $67 billion tax expenditure that subsidizes 20% of all workers. Yet all prior analysis uses partial equilibrium assumptions on gross wages. I derive the general equilibrium incidence of wage subsidies and quantify the importance of EITC spillovers in three ways. I calculate the GE incidence of the 1993 and 2009 EITC expansions using new elasticity estimates. I contrast the incidence of counterfactual EITC and Welfare expansions. I quantify the effect of equalizing the EITC for workers with and without children. In all cases, I find spillovers are economically meaningful.

Url: https://www.fdic.gov/analysis/cfr/researchers/lwatson/clw-gen-eq-eitc.pdf

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Authors: Watson, C. Luke

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Data Collections: IPUMS USA, IPUMS CPS

Topics: Labor Force and Occupational Structure, Poverty and Welfare

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