Using The EITC to Help Poor Families: New Evidence and a Comparison with the Minimum Wage

Abstract

This paper evaluates the effects of the earned income tax credit (EITC) on poor families' earnings. Exploiting state-level variation in EITCs, we find that the EITC helps families rise above poverty-level earnings, primarily by inducing labor market entry in families that initially do not have an adult worker. Evidence based on the federal EITC is less supportive of a positive impact of the EITC. Finally, based on the state-level EITC results, our findings suggest that for the range of policy changes typical of recent history in the U.S., the EITC is more beneficial for poor families than is the minimum wage.