Labor supply response to the earned income tax credit.

"... This paper analyzes optimal income transfers for low incomes. Labor supply responses are modeled along the intensive margin (intensity of work on the job) and along the extensive margin (participation into the labor force). When behavioral responses are concentrated along the intensive margin, the o ..."

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This paper analyzes optimal income transfers for low incomes. Labor supply responses are modeled along the intensive margin (intensity of work on the job) and along the extensive margin (participation into the labor force). When behavioral responses are concentrated along the intensive margin, the optimal transfer program is a classical Negative Income Tax program with a substantial guaranteed income support and a large phasing-out tax rate. However, when behavioral responses are concentrated along the extensive margin, the optimal transfer program is similar to the Earned Income Tax Credit with negative marginal tax rates at low income levels and a small guaranteed income. Carefully calibrated numerical simulations are provided.

the Earned Income Tax Credit and the Labor Supply of Single Mothers,” NBER Working Paper No

by Bruce D. Meyer, Dan, T. Rosenbaum , 1999

"... During 1984–1996, welfare and tax policy were changed to encourage work by single mothers. The Earned Income Tax Credit was expanded, welfare bene�ts were cut, welfare time limits were added, and welfare cases were terminated. Medicaid for the working poor was expanded, as were training programs and ..."

Abstract - Cited by 219 (7 self) - Add to MetaCart

During 1984–1996, welfare and tax policy were changed to encourage work by single mothers. The Earned Income Tax Credit was expanded, welfare bene�ts were cut, welfare time limits were added, and welfare cases were terminated. Medicaid for the working poor was expanded, as were training programs and child care. During this same time period there were unprecedented increases in the employment and hours of single mothers. We show that a large share of the increase in work by single mothers can be attributed to the EITC and other tax changes, with smaller shares for welfare bene�t cuts, welfare waivers, training programs and child care programs. I.

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Alternative Approaches to Evaluation in Empirical Microeconomics

by Richard Blundell, Monica Costa Dias , 2002

"... Four alternative but related approaches to empirical evaluation of policy interventions are studied: social experiments, natural experiments, matching methods, and instrumental variables. In each case the necessary assumptions and the data requirements are considered for estimation of a number of ke ..."

Abstract - Cited by 158 (3 self) - Add to MetaCart

Four alternative but related approaches to empirical evaluation of policy interventions are studied: social experiments, natural experiments, matching methods, and instrumental variables. In each case the necessary assumptions and the data requirements are considered for estimation of a number of key parameters of interest. These key parameters include the average treatment effect, the treatment of the treated and the local average treatment effect. Some issues of implementation and interpretation are discussed drawing on the labour market programme evaluation literature.

Evaluating the employment impact of a mandatory job search program

by Richard Blundell, Monica Costa Dias, Costas Meghir, John Van Reenen, Richard Blundell, Monica Costa Dias, Costas Meghir, John Van Reenen - Journal of the European Economic Association , 2004

"... This paper exploits area based piloting and age-related eligibility rules to identify treatment effects of a labor market program – the New Deal for Young People in the UK. A central focus is on substitution/displacement effects and on equilibrium wage effects. The program includes extensive job ass ..."

Abstract - Cited by 141 (11 self) - Add to MetaCart

This paper exploits area based piloting and age-related eligibility rules to identify treatment effects of a labor market program – the New Deal for Young People in the UK. A central focus is on substitution/displacement effects and on equilibrium wage effects. The program includes extensive job assistance and wage subsidies to employers. We find that the program significantly raised transitions to employment by about five percentage points (about 20 percent over the pre-program base). The impact is robust to a wide variety of non-experimental estimators. However we present some evidence suggesting that this effect may not be as large in the longer run. JEL Classification: J18, J23, J38

The Impact of Firing Costs on Turnover and Unemployment: Evidence from the Colombian Labor Market Reform,

by Adriana D Kugler - International Tax and Public Finance Journal, , 1999

"... Abstract Reductions in firing costs are often advocated as a way of increasing the dynamism of labour markets in both developed and less developed countries. Evidence from Europe and the U.S. on the impact of firing costs has, however, been mixed. Moreover, legislative changes both in Europe and th ..."

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Abstract Reductions in firing costs are often advocated as a way of increasing the dynamism of labour markets in both developed and less developed countries. Evidence from Europe and the U.S. on the impact of firing costs has, however, been mixed. Moreover, legislative changes both in Europe and the U.S. have been limited. This paper, instead, examines the impact of the Colombian Labour Market Reform of 1990, which substantially reduced dismissal costs. I estimate the incidence of a reduction in firing costs on worker turnover by exploiting the temporal change in the Colombian labour legislation as well as the variability in coverage between formal and informal sector workers. Using a grouping estimator to control for common aggregate shocks and selection, I find that the exit hazard rates into and out of unemployment increased after the reform by over 1% for formal workers (covered by the legislation) relative to informal workers (uncovered). The increase of the hazards implies a net decrease in unemployment of a third of a percentage point, which accounts for about one quarter of the fall in unemployment during the period of study.

Taxes and the Labor Market Participation of Married Couples: The Earned Income Tax Credit.”

by Nada Eissa , Hilary Williamson Hoynes - Journal of Public Economics , 2004

"... Abstract A distinguishing feature of recent changes to the US system of public assistance is its increasing focus on working families and reliance on the tax system to transfer dollars to needy families. After a decade in near total obscurity, the earned income tax credit (EITC) was expanded to bec ..."

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Abstract A distinguishing feature of recent changes to the US system of public assistance is its increasing focus on working families and reliance on the tax system to transfer dollars to needy families. After a decade in near total obscurity, the earned income tax credit (EITC) was expanded to become the largest cash-transfer program for lower-income families with children. Advocates of the EITC argue that, unlike traditional welfare, the credit helps ''promote both the values of family and work''. Indeed, empirical evidence consistent with economic theory suggests that the EITC promotes employment among eligible unmarried women with children. To target benefits to lower-income families, however, the EITC is based on family income, leading to traditional welfare-type disincentives for most eligible secondary earners. In fact, the EITC is likely to reduce overall family labor supply among married couples. This paper examines the labor force participation response of married couples to EITC expansions between 1984 and 1996. The effect of the credit is estimated using both quasiexperimental and traditional reduced-form labor supply models. Results from both models show the same qualitative conclusion, that the EITC expansions reduced total family labor supply of married couples. In all cases, we find a decline in labor force participation by married women that more than offsets any rise in participation by their spouses. While the labor force participation rate of married men increased by about 0.2 percentage points, that of married women decreased by just over a full percentage point. These aggregate effects mask substantial heterogeneity in the population. Women facing the strongest disincentives were more than 2 percentage points less likely to work after the expansions. These findings imply that the EITC is effectively subsidizing married mothers to stay home, and therefore, have implications for the design of the program. D

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Welfare Reform in European Countries: A Micro-simulation Analysis

by Herwig Immervoll, Henrik Jacobsen Kleven, Claus Thustrup Kreiner, Emmanuel Saez - The Economic Journal , 2007

"... This article compares the effects of increasing traditional welfare to introducing in-work benefits in the 15 (pre-enlargement) countries of the European Union. We use a labour supply model encompassing responses to taxes and transfers along both the intensive and extensive margins, and the EUROMOD ..."

Abstract - Cited by 97 (11 self) - Add to MetaCart

This article compares the effects of increasing traditional welfare to introducing in-work benefits in the 15 (pre-enlargement) countries of the European Union. We use a labour supply model encompassing responses to taxes and transfers along both the intensive and extensive margins, and the EUROMOD microsimulation model to estimate current marginal and participation tax rates. We quantify the equity-efficiency trade-off for a range of elasticity parameters. In most countries, because of large existing welfare programmes with high phase-out rates, increasing traditional welfare is undesirable unless the redistributive tastes of the government are extreme. In contrast, the in-work benefit reform is desirable in a very wide set of cases. Transfers to low-income individuals have grown significantly in Western Europe since World War II. Today, most European countries devote a sizeable amount of public spending to low-income support through various programmes such as unemployment insurance for those temporarily out of work, disability insurance for the disabled, housing and families subsidies for those with modest incomes or children, and various other income maintenance and welfare programmes for those with no or very small incomes. Table 1 displays the fraction of government transfers in disposable incomes at each decile for 15 European countries for those aged 18 to 59. In all countries, such transfers represent a very large fraction of disposable income for the bottom deciles. The proper amount of redistribution and the design of transfer programmes is an important and controversial issue in the political sphere. As is well known among economists, redistribution gives rise to a trade-off between equity and efficiency.

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The Earned Income Tax Credit and the Labor Supply of Married Couples

by Nada Eissa, Hilary Williamson Hoynes , 1999

"... Over 18 million taxpayers are projected to receive the Earned Income Tax Credit (EITC) in tax year 1997, at a total cost to the federal government of about 25 billion dollars. The EITC is refundable, so any amount of the credit exceeding the family's tax liability is returned in the form of a ..."

Abstract - Cited by 86 (6 self) - Add to MetaCart

Over 18 million taxpayers are projected to receive the Earned Income Tax Credit (EITC) in tax year 1997, at a total cost to the federal government of about 25 billion dollars. The EITC is refundable, so any amount of the credit exceeding the family's tax liability is returned in the form of a cash refund. Advocates of the credit argue that this redistribution occurs with much less distortion to labor supply than that caused by other elements of the welfare system. This popular view that the credit "encourages work effort" is unlikely to hold among married couples. Theory suggests that primary earners (typically men) would increase labor force participation, but secondary earners would reduce their labor supply in response to an EITC. We study the labor supply response of married couples to several EITC expansions between 1984 and 1996. Although our primary interest is the response to changes in the budget set induced by the EITC, our estimation strategy takes account of budget set cha...

Labor supply response to the earned income tax credit. (1996)

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