Abstract
The effectiveness of the Earned Income Tax Credit (EITC) of benefiting low-income families depends on its economic incidence. The EITC is more effective if its incidence is captured by the worker. Interest in whether the EITC incidence is captured by the worker or the employer follows from the EITC's larger role in increasing low-income workers' labor supply. Using cross-sectional and cross-time variation in the federal and state EITCs with data from the Current Population Survey, I examine the effect of the 1993 EITC expansion on the wages of unmarried women. Accounting for the sample selection problem and the endogeneity of the EITC, I find no evidence of a statistically significant decrease in wages received by unmarried women who face larger increases in their EITC compared to those who face smaller increases. With a positive effect on labor supply but no adverse effect on wages, this study supports the EITC as an effective anti-poverty instrument.
Published Version
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