TY - JOUR
T1 - Do EITC expansions pay for themselves? Effects on tax revenue and government transfers
AU - Bastian, Jacob E.
AU - Jones, Maggie R.
N1 - Funding Information:
Any opinions and conclusions expressed herein are those of the authors and do not necessarily reflect the views of the U.S. Census Bureau. All results have been reviewed to ensure that no confidential information is disclosed. The statistical summaries reported in this document have been cleared by the Census Bureau’s Disclosure Review Board release authorization numbers CBDRB-FY18-388, CBDRB-FY18-471, and CBDRB-FY18-498. We would like to thank Reagan Baughman, Dan Black, Manasi Deshpande, Ingvil Gaarder, Yana Gallen, Peter Ganong, Jeff Grogger, Jon Guryan, Ben Harris, Nathan Hendren, Jim Hines, Hilary Hoynes, Koichiro Ito, Damon Jones, Louis Kaplow, Wojciech Kopczuk, Amanda Kowalski, Ben Lockwood, Bruce Meyer, Sam Norris, Nirupama Rao, Kyle Rozema, Bryan Stuart, Chris Taber, Alisa Tazhitdinova, Brenden Timpe, Matt Weinzierl, Justin Wolfers, Josh Graff Zivin, seminar participants at NBER Spring Public Economics Meeting, Society of Labor Economists, Chicago Harris School of Public Policy, Michigan, Wisconsin, UT Austin, Columbia Tax Policy Workshop, Federal Statistical Research Data Centers conference, APPAM, and the Urban Institute for helpful advice and comments; and Melissa Winkler and David Franks for excellent research assistance; and Jon Bakija for sharing his tax simulator. This research was funded by the Smith Richardson Foundation.
Publisher Copyright:
© 2021 Elsevier B.V.
PY - 2021/4
Y1 - 2021/4
N2 - This paper calculates the EITC's net cost by estimating effects, both direct and through recipients’ behavioral changes, on tax revenue and government transfer spending. We show that the EITC increases labor supply and income, thereby increasing the taxes households pay and reducing the government transfer payments they receive. Using linked IRS–CPS data and several EITC policy changes, and focusing on married and unmarried women, we find that the EITC's net cost is only 17 percent of the ($70 billion) budgetary cost over a one-year period. Although the EITC is one of the U.S.’s largest and most important public assistance programs, the EITC is actually one of the U.S.’s least expensive anti-poverty programs.
AB - This paper calculates the EITC's net cost by estimating effects, both direct and through recipients’ behavioral changes, on tax revenue and government transfer spending. We show that the EITC increases labor supply and income, thereby increasing the taxes households pay and reducing the government transfer payments they receive. Using linked IRS–CPS data and several EITC policy changes, and focusing on married and unmarried women, we find that the EITC's net cost is only 17 percent of the ($70 billion) budgetary cost over a one-year period. Although the EITC is one of the U.S.’s largest and most important public assistance programs, the EITC is actually one of the U.S.’s least expensive anti-poverty programs.
KW - Earned income tax credit
KW - Fiscal policy
KW - Government transfers
KW - Public assistance
KW - Taxes
KW - Women's labor supply
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U2 - 10.1016/j.jpubeco.2020.104355
DO - 10.1016/j.jpubeco.2020.104355
M3 - Article
AN - SCOPUS:85101237841
SN - 0047-2727
VL - 196
JO - Journal of Public Economics
JF - Journal of Public Economics
M1 - 104355
ER -