The Interaction of Metropolitan Cost-of-living & the Federal Earned Income Tax Credit: One Size Fits All?

Katie Fitzpatrick and Jeffrey Thompson

Working Papers from Political Economy Research Institute, University of Massachusetts at Amherst

Abstract: This paper explores the interaction between the federal Earned Income Tax Credit (EITC) and the cost-of-living faced by single mothers. After the 1993 EITC expansion, we identify up to a 10 percentage point increase in labor force participation for single mothers in the lowest cost areas but no discernable response in the highest cost areas. We conclude that the EITC’s welfare-enhancing properties are undermined by the interaction of the program’s fixed national rules and geographic variation in wages and cost-of-living. In addition, our findings suggest that the EITC does little to reduce joblessness in many of the nation’s largest cities.

Keywords: EITC; Cost-of-Living; Tax reform; Labor supply (search for similar items in EconPapers)
JEL-codes: H24 H31 I31 J22 R23 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:uma:periwp:wp204

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