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The EITC and the labor supply of adult dependents: direct effects and family income effects

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  • Margaret Katherine McKeehan

    (Department of Economics MS-22, Rice University)

Abstract

Tax data suggest that the population of adult dependents—adults relying on the support of others for the majority of their financial needs—has more than doubled over the last decade. However, little is known about how taxes affect the labor supply decisions of this population. This paper provides an initial investigation, studying the impact of the Earned Income Tax Credit (EITC) expansions of the early 1990s on the labor supply of adult dependents living with their relatives. I find that dependent individuals who were not a part of the nuclear family responded to the EITC expansions, increasing labor force participation by about 5 percentage points. For adult children, I show that the absence of a net response is likely due to an unexpected consequence of the EITC: expanded family credits led to a decrease in their labor force participation.

Suggested Citation

  • Margaret Katherine McKeehan, 2018. "The EITC and the labor supply of adult dependents: direct effects and family income effects," Review of Economics of the Household, Springer, vol. 16(3), pages 791-807, September.
    • Handle: RePEc:kap:reveho:v:16:y:2018:i:3:d:10.1007_s11150-017-9370-4
    DOI: 10.1007/s11150-017-9370-4
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    3. Enrica Di Stefano, 2017. "Leaving your mamma: why so late in Italy?," Temi di discussione (Economic working papers) 1144, Bank of Italy, Economic Research and International Relations Area.
    4. Otto Lenhart, 2019. "The effects of income on health: new evidence from the Earned Income Tax Credit," Review of Economics of the Household, Springer, vol. 17(2), pages 377-410, June.

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    More about this item

    Keywords

    EITC; Labor supply; OBRA 1993; Dependents;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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