Do EITC expansions pay for themselves? Effects on tax revenue and government transfers

Jacob Bastian and Maggie R. Jones

Journal of Public Economics, 2021, vol. 196, issue C

Abstract: This paper calculates the EITC’s net cost by estimating effects, both direct and through recipients’ behavioral changes, on tax revenue and government transfer spending. We show that the EITC increases labor supply and income, thereby increasing the taxes households pay and reducing the government transfer payments they receive. Using linked IRS–CPS data and several EITC policy changes, and focusing on married and unmarried women, we find that the EITC’s net cost is only 17 percent of the ($70 billion) budgetary cost over a one-year period. Although the EITC is one of the U.S.’s largest and most important public assistance programs, the EITC is actually one of the U.S.’s least expensive anti-poverty programs.

Keywords: Earned income tax credit; Taxes; Public assistance; Government transfers; Women’s labor supply; Fiscal policy (search for similar items in EconPapers)
JEL-codes: H22 H24 H31 I32 I38 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:196:y:2021:i:c:s004727272030219x

DOI: 10.1016/j.jpubeco.2020.104355

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