The General Equilibrium Incidence of the Earned Income Tax Credit

EITC
Labor Supply
Labor Demand
IV
Tax Incidence
My JMP
Author

C. Luke Watson

Published

September 1, 2021

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Abstract

The Earned Income Tax Credit is a $67 billion tax expenditure that subsidizes 20% of all workers. Yet all prior analysis uses partial equilibrium assumptions on gross wages. I derive the general equilibrium incidence of wage subsidies and quantify the importance of EITC spillovers in three ways. I calculate the GE incidence of the 1993 and 2009 EITC expansions using new elasticity estimates. I contrast the incidence of counterfactual EITC and Welfare expansions. I quantify the effect of equalizing the EITC for workers with and without children. In all cases, I find spillovers are economically meaningful.

BibTeX citation

@techreport{watson_geeitc:2021,
    Author = {C. Luke Watson},
    Month = {9},
    Title = {The General Equilibrium Incidence of the Earned Income Tax Credit},
    Type = {Manuscript},
    Year = {2021}}