The Earned Income Tax Credit:Targeting the Poor but Crowding Out Wealth

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Item Type Journal paper
Abstract This paper quantifies the individual, aggregate and welfare effects of the Earned Income Tax Credit (EITC). In particular, we analyze the labor supply and saving responses to changes in tax credit generosity and their implications for prices and welfare. Our results show that the EITC is a subsidy on labor income and a tax on savings. An increase in EITC generosity raises labor force participation, reduces savings for many and provides insurance to working poor households. The EITC reduces earnings inequality but increases the skill premium and wealth inequality. A 10% increase in tax credit generosity increases welfare by 0.31% and benefits the majority of the population.
Authors Froemel, Maren & Gottlieb, Charles
Journal or Publication Title Canadian Journal of Economics
Language English
Keywords Fiscal Policy, Tax Credit Policy, Insurance, Transition.
Subjects economics
social sciences
HSG Classification contribution to scientific community
HSG Profile Area SEPS - Quantitative Economic Methods
Refereed Yes
Date February 2021
Publisher Blackwell Publishing Limited
Volume 51
Number 1
ISSN 0008-4085
Depositing User Prof. Ph.D Charles Gottlieb
Date Deposited 16 Dec 2019 20:22
Last Modified 23 Mar 2023 01:26


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Froemel, Maren & Gottlieb, Charles (2021) The Earned Income Tax Credit:Targeting the Poor but Crowding Out Wealth. Canadian Journal of Economics, 51 (1). ISSN 0008-4085

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