Scholarly Comments on Academic Economics

The EITC Disincentive: The Effects on Hours Worked from the Phase-out of the Earned Income Tax Credit

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*Paul Trampe* has worked for the federal government for 19 years, as an economist in the executive branch and an economic policy advisor in the legislative branch. He holds an MA in history from George Mason University and is currently enrolled in the Ph.

Abstract

This paper examines the effect on hours worked of the income-based phase-out of the Earned Income Tax Credit (EITC). It discusses earlier literature on the subject. While the effects on labor force participation of EITC have been thoroughly studied, producing a consensus that the program encourages participation particularly among single women with children, the effect on hours has taken a back seat in most studies. Those who have studied the issue have generally found no effect. A number of those studies, however, were based on a population defined too broadly to indicate anything meaningful for the EITC population, while others seemed to overlook facets of their own data. I include a multiple regression using Current Population Survey Data cases in which family income corresponds to the phase-out range of EITC. Only in the phase-out range – as beneficiaries lose part of their benefits as a percentage of income above the threshold amount – would we expect a negative effect on hours worked. My results show a small negative effect on hours worked for the population in the phase-out range.

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Volume (Issue)
Pages
308-320
Published
JEL classification
I38, H3
Keywords
Earned Income, Marginal Tax Rate, Phase-out, Phase-in, Plateau region, Disincentive, Workforce Participation, Assistance
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