The EITC Disincentive: The Effects on Hours Worked from the Phase-out of the Earned Income Tax Credit

This paper examines the effect on hours worked of the income-based phase-out of the Earned Income Tax Credit (EITC). It discusses earlier literature on the subject. While the effects on labor force participation of EITC have been thoroughly studied, producing a consensus that the program encourages participation particularly among single women with children, the effect on hours has taken a back seat in most studies. Those who have studied the issue have generally found no effect. A number of those studies, however, were based on a population defined too broadly to indicate anything meaningful for the EITC population, while others seemed to overlook facets of their own data. I include a multiple regression using Current Population Survey Data cases in which family income corresponds to the phase-out range of EITC. Only in the phase-out range – as beneficiaries lose part of their benefits as a percentage of income above the threshold amount – would we expect a negative effect on hours worked. My results show a small negative effect on hours worked for the population in the phase-out range.