Macroeconomic Implications of the Earned Income Tax Credit

Ryan Edwards ()

National Tax Journal, 2004, vol. 57, issue 1, 45-65

Abstract: Changes in the monthly pattern of Earned Income Tax Credit disbursements over the last two decades identify a large macroeconomic consumption response from EITC checks. This paper recovers a large and significant MPC out of EITC disbursements based on an array of macroeconomic data and econometric specifications. Point estimates of the contemporaneous consumption response average 0.7 and do not attribute a disproportionate share of consumption to durable goods. Results are consistent with other empirical findings that consumption is excessively sensitive to income, and they suggest that the EITC is a much more effective fiscal stimulus tool than broad–based tax refunds.

Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:ntj:journl:v:57:y:2004:i:1:p:45-65

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