The Earned Income Tax Credit
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Abstract
Since its inception in 1975, the Earned Income Tax Credit (EITC) has grown into the
largest, Federally-funded means-tested cash assistance program in the United States.
In this chapter, we review the political history of the EITC, its rules and goals
and provide a broad set of program statistics on its growth and coverage. We summarize
conceptual underpinnings of much of the recent economic research on the EITC, discussing
participation in the credit and compliance with its provisions, and its effects on
labor force participation and hours of work, marriage and fertility, skill formation
and consumption. We note that participation rates of the credit are high, rates of
credit noncompliance are also high, and that there are theoretical reasons to prefer
the EITC to other anti-poverty programs if one's objective is to encourage work among
the poor. We also note that the predicted effects of the EITC are not all pro-work,
especially with respect to hours and its labor market incentives for two-earner couples.
We then summarize the existing empirical research on the behavioral effects of the
EITC, paying particularly emphasis to the effects of the 1986, 1990 and 1993 expansions
of the credit on labor force participation and hours of work. The literature provides
consistent evidence, generated from a variety of empirical approaches, that the EITC
positively affects labor force participation. The literature also finds smaller, negative
effects on hours of work for people already in the labor market and for secondary
workers. We conclude the chapter with a discussion of the ongoing EITC-related policy
debates and highlight what, if any, critical economic issues underlie these debates.
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https://hdl.handle.net/10161/2620Citation
Hotz, V Joseph; & Scholz, John Karl (n.d.). The Earned Income Tax Credit. Retrieved from https://hdl.handle.net/10161/2620.Collections
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V. Joseph Hotz
Arts and Sciences Distinguished Professor of Economics
Professor Hotz specializes in the subjects of applied econometrics, labor economics,
economic demography, and economics of the family. His studies have investigated the
impacts of social programs, such as welfare-to-work training; the relationship between
childbearing patterns and labor force participation of U.S. women; the effects of
teenage pregnancy; the child care market; the Earned Income Tax Credit; and other
such subjects. He began conducting his studies in 1977, and has since publishe

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