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Who Does the Earned Income Tax Credit Benefit? A Monopsony View

Aida Farmand () and Owen Davis
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Owen Davis: Schwartz Center for Economic Policy Analysis (SCEPA),

No 2021-02, SCEPA working paper series. from Schwartz Center for Economic Policy Analysis (SCEPA), The New School

Abstract: The Earned Income Tax Credit (EITC) targets refundable tax credits to low-income workers, incentivizing labor supply and raising the incomes of tens of millions of Americans. One possible consequence of subsidizing low-wage work, however, is to reduce wage growth. A monopsony model of the EITC is developed in order to analyze its impacts on labor market outcomes, which are identified by exploiting variation in state EITC supplements. A first set of results focused on the food service industry find that the EITC increases employment and reduces turnover among young women. Further results suggest that the EITC reduces wages for workers without college degrees. These findings prompt a reconsideration of the redistributive effects of the EITC, particularly for groups like older low-wage workers who face slower wage growth as a result of the policy but do not receive the same level of benefits on average

Keywords: Retirement income; Earned Income Tax Credit; EITC; Older worker labor supply; low-wage (search for similar items in EconPapers)
JEL-codes: H55 J26 J32 (search for similar items in EconPapers)
Date: 2021-03
New Economics Papers: this item is included in nep-age, nep-lma and nep-pbe
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