IDEAS home Printed from https://ideas.repec.org/p/epa/cepawp/2019-04.html
   My bibliography  Save this paper

Impacts of Earned Income Tax Credit on Wages of Ineligible Workers

Author

Abstract

This paper analyzes the impact of the Earned Income Tax Credit (EITC) pay- ments on labour market behaviors, wages and the tax incidence. The variation in state EITC supplement in the U.S. provides the opportunity to examine the real redistributive impacts of this policy. More specifically, if EITC recipients compete in the same labor markets as others who are ineligible for the credit this can cause wage declines for workers who do not receive off setting EITC payments. Using a fixed effect model that controls for inter-state heterogeneity this study concludes that based on industry from 1991-2017 older (over age 55) ineligible workers who resided in states with more generous EITC benefits saw significantly less wage growth compared to their counterparts that did not reside in states with generous EITC supplements.

Suggested Citation

  • Aida Farmand, 2019. "Impacts of Earned Income Tax Credit on Wages of Ineligible Workers," SCEPA working paper series. 2019-04, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    • Handle: RePEc:epa:cepawp:2019-04
    as

    Download full text from publisher

    File URL: https://www.economicpolicyresearch.org/images/docs/research/employment/EITC_wp_2019_final.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Bruce D. Meyer & Dan T. Rosenbaum, 2001. "Welfare, the Earned Income Tax Credit, and the Labor Supply of Single Mothers," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(3), pages 1063-1114.
    2. Jesse Rothstein, 2008. "The Unintended Consequences of Encouraging Work: Tax Incidence and the EITC," Working Papers 1049, Princeton University, Department of Economics, Center for Economic Policy Studies..
    3. Leigh Andrew, 2010. "Who Benefits from the Earned Income Tax Credit? Incidence among Recipients, Coworkers and Firms," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-43, May.
    4. Jesse Rothstein, 2008. "The Unintended Consequences of Encouraging Work: Tax Incidence and the EITC," Working Papers 1049, Princeton University, Department of Economics, Center for Economic Policy Studies..
    5. Nada Eissa & Jeffrey B. Liebman, 1996. "Labor Supply Response to the Earned Income Tax Credit," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(2), pages 605-637.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Watson, C. Luke, 2021. "the General Equilibrium Incidence of the Earned Income Tax Credit," SocArXiv 8n3ag, Center for Open Science.
    2. Hoynes, Hilary & Rothstein, Jesse, 2016. "Tax Policy Toward Low-Income Families," Department of Economics, Working Paper Series qt87d6v10j, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    3. David Neumark & William Wascher, 2011. "Does a Higher Minimum Wage Enhance the Effectiveness of the Earned Income Tax Credit?," ILR Review, Cornell University, ILR School, vol. 64(4), pages 712-746, July.
    4. Leigh Andrew, 2010. "Who Benefits from the Earned Income Tax Credit? Incidence among Recipients, Coworkers and Firms," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-43, May.
    5. Raj Chetty, 2012. "Bounds on Elasticities With Optimization Frictions: A Synthesis of Micro and Macro Evidence on Labor Supply," Econometrica, Econometric Society, vol. 80(3), pages 969-1018, May.
    6. Kenneth A. Couch & Douglas J. Besharov & David Neumark, 2013. "Spurring Job Creation in Response to Severe Recessions: Reconsidering Hiring Credits," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 32(1), pages 142-171, January.
    7. Jesse Rothstein, 2009. "Is the EITC Equivalent to an NIT? Conditional Cash Transfers and Tax Incidence," NBER Working Papers 14966, National Bureau of Economic Research, Inc.
    8. Jeannette Wicks-Lim & Jeffrey Thompson, 2010. "Combining Minimum Wage and Earned Income Tax Credit Policies to Guarantee a Decent Living Standard to All U.S. Workers," Published Studies peri_mw_eitc_oct2010, Political Economy Research Institute, University of Massachusetts at Amherst.
    9. Jonathan Meer & Joshua Witter, 2022. "Effects of the Earned Income Tax Credit for Childless Adults: A Regression Discontinuity Approach," NBER Chapters, in: Tax Policy and the Economy, Volume 37, pages 175-198, National Bureau of Economic Research, Inc.
    10. David Neumark & Brian Asquith & Brittany Bass, 2020. "Longer‐Run Effects Of Anti‐Poverty Policies On Disadvantaged Neighborhoods," Contemporary Economic Policy, Western Economic Association International, vol. 38(3), pages 409-434, July.
    11. Laun, Lisa, 2019. "In-work benefits across Europe," Working Paper Series 2019:16, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    12. Kory Kroft & Kavan Kucko & Etienne Lehmann & Johannes Schmieder, 2020. "Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach," American Economic Journal: Economic Policy, American Economic Association, vol. 12(1), pages 254-292, February.
    13. Kolm, Ann-Sofie & Tonin, Mirco, 2012. "In-Work Benefits and the Nordic Model," IZA Discussion Papers 7084, Institute of Labor Economics (IZA).
    14. David Neumark & Katherine E. Williams, 2020. "Do State Earned Income Tax Credits Increase Participation in the Federal EITC?," Public Finance Review, , vol. 48(5), pages 579-626, September.
    15. Andrew Leigh, 2005. "Optimal Design of Earned Income Tax Credits: Evidence from a British Natural Experiment," CEPR Discussion Papers 488, Centre for Economic Policy Research, Research School of Economics, Australian National University.
    16. Amanda Y. Agan & Michael D. Makowsky, 2023. "The Minimum Wage, EITC, and Criminal Recidivism," Journal of Human Resources, University of Wisconsin Press, vol. 58(5), pages 1712-1751.
    17. Neumark, David & Shirley, Peter, 2020. "The Long-Run Effects of the Earned Income Tax Credit on Women's Labor Market Outcomes," Labour Economics, Elsevier, vol. 66(C).
    18. Andrew Shephard, 2017. "Equilibrium Search And Tax Credit Reform," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 58(4), pages 1047-1088, November.
    19. Elira Kuka, 2014. "EITC and the Self-employed," Public Finance Review, , vol. 42(6), pages 691-719, November.
    20. Helge Bennmarker & Lars Calmfors & Anna Seim, 2014. "Earned income tax credits, unemployment benefits and wages: empirical evidence from Sweden," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-20, December.

    More about this item

    Keywords

    EITC; wages; bargaining power;
    All these keywords.

    JEL classification:

    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy
    • J59 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Other

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:epa:cepawp:2019-04. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Bridget Fisher (email available below). General contact details of provider: https://edirc.repec.org/data/cenewus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.