International economic research paper
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Sample_Policy_Presentation_EITC2.pptxWhat Should Policy Makers Know About The Earned Income Tax Credit?
History
The Federal Earned Income Tax Credit (EITC) was introduced by Republicans (broad support) in 1975 to offset the payroll tax
Phase-in for worker credit is 7.65% (employee payroll tax)
Intended to provide marginal incentive on earned income (labor income).
No hard evidence for or against EITC affect on aggregate employment
Max credit rises with children (up to 2).
Did not include, initially, separate schedule for married couples.
Expanded to three children in 2009.
Problems with phase-ins and phase-outs
Many tax payers report income right around the end of the phase-in
Self-employed workers can claim the credit and can misreport income.
How can we know if people are misreporting?
Natural experiment: do self-employed move to the new phase-in when they have children? Relative to formally employed?
Mortenson and Whitten (2017) show this is happening.
Problems with phase-ins and phase-outs
Is there evidence that the EITC increases actual earned income?
Yes, but on the extensive margin (entry and exit from labor force)
Intensive margin (adjusting hours) studies show that tax payers move to the kink points, but this is likely misreporting.
Survey paper (summarizes historical studies) by Eissa and Hoynes (2005)
Empircal studies repeatedly show that EITC increases labor force participation of single mothers (of mostly low education).
Done with natural experiments: expansions of credit in 86, 90, and 93.
