Is the EITC as Good as an NIT? Conditional Cash Transfers and Tax Incidence

Jesse Rothstein

American Economic Journal: Economic Policy, 2010, vol. 2, issue 1, 177-208

Abstract: The EITC is intended to encourage work. But EITC-induced increases in labor supply may drive wages down. I simulate the economic incidence of the EITC. In each scenario that I consider, a large portion of low-income single mothers' EITC payments is captured by employers through reduced wages. Workers who are EITC ineligible also see wage declines. By contrast, a traditional Negative Income Tax (NIT) discourages work, and so induces large transfers from employers to their workers. With my preferred parameters, $1 in EITC spending increases after-tax incomes by $0.73, while $1 spent on the NIT yields $1.39. (JEL H22, H23, H24, H31, J22)

JEL-codes: H22 H23 H24 H31 J22 (search for similar items in EconPapers)
Date: 2010
Note: DOI: 10.1257/pol.2.1.177
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Citations: View citations in EconPapers (148)

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