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Macroeconomic Implications of the Earned Income Tax Credit

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  • Edwards, Ryan D.

Abstract

Changes in the monthly pattern of Earned Income Tax Credit disbursements over the last two decades identify a large macroeconomic consumption response from EITC checks. This paper recovers a large and significant MPC out of EITC disbursements based on an array of macroeconomic data and econometric specifications. Point estimates of the contemporaneous consumption response average 0.7 and do not attribute a disproportionate share of consumption to durable goods. Results are consistent with other empirical findings that consumption is excessively sensitive to income, and they suggest that the EITC is a much more effective fiscal stimulus tool than broad–based tax refunds.

Suggested Citation

  • Edwards, Ryan D., 2004. "Macroeconomic Implications of the Earned Income Tax Credit," National Tax Journal, National Tax Association;National Tax Journal, vol. 57(1), pages 45-65, March.
    • Handle: RePEc:ntj:journl:v:57:y:2004:i:1:p:45-65
    DOI: 10.17310/ntj.2004.1.03
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    Cited by:

    1. Katie Fitzpatrick, 2015. "Does “Banking the Unbanked” Help Families to Save? Evidence from the United Kingdom," Journal of Consumer Affairs, Wiley Blackwell, vol. 49(1), pages 223-249, March.
    2. Simpson, Nicole B., 2013. "Families, Taxes and the Welfare System," IZA Discussion Papers 7369, Institute of Labor Economics (IZA).
    3. Sheila Mammen & Frances Lawrence & Peter Marie & Ann Berry & Suzann Knight, 2011. "The Earned Income Tax Credit and Rural Families: Differences Between Non-participants and Participants," Journal of Family and Economic Issues, Springer, vol. 32(3), pages 461-472, September.
    4. Norbert Michel & Nazneen Ahmad, 2012. "Consumer response to child tax credit," Empirical Economics, Springer, vol. 43(3), pages 1199-1214, December.
    5. Cowan Benjamin & Tefft Nathan, 2012. "Education, Maternal Smoking, and the Earned Income Tax Credit," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-39, October.

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