Repairing the safety net: Is the EITC the right patch?

Edward J. Bird
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Edward J. Bird: W. Allen Wallis Institute of Political Economy, University of Rochester, Rochester, New York, Postal: W. Allen Wallis Institute of Political Economy, University of Rochester, Rochester, New York

Journal of Policy Analysis and Management, 1996, vol. 15, issue 1, 1-31

Abstract: Using data from the Michigan Panel Study of Income Dynamics, this article estimates the impact of the Earned Income Tax Credit (EITC) on economic risk. Risk is measured through the variance of full income (income holding labor supply constant). The results show that the EITC significantly reduces economic risk, but its effects are weaker dollar for dollar than traditional means-tested programs like Food Stamps. The difference is not statistically significant, however. Moreover, for many middle-class people, the risk-reduction benefits of the EITC exceed the tax burden it imposes. This is less true of means-tested transfers. These results are significant for the politics of antipoverty policy. They show that a real-world antipoverty program can generate enough middle-class economic security to build for itself a solid base of political support.

Date: 1996
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jpamgt:v:15:y:1996:i:1:p:1-31

DOI: 10.1002/(SICI)1520-6688(199624)15:1<1::AID-PAM1>3.0.CO;2-K

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