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the General Equilibrium Incidence of the Earned Income Tax Credit

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  • Watson, C. Luke

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.

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  • Watson, C. Luke, 2021. "the General Equilibrium Incidence of the Earned Income Tax Credit," SocArXiv 8n3ag, Center for Open Science.
    • Handle: RePEc:osf:socarx:8n3ag
    DOI: 10.31219/osf.io/8n3ag
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