The Earned Income Tax Credit and Reported Self-Employment Income

Sara LaLumia

No 2009-07, Department of Economics Working Papers from Department of Economics, Williams College

Abstract: The Earned Income Tax Credit subsidizes earnings from both the wage sector and the self-employment sector. This paper uses tax return data to investigate how the EITC affects the reporting of self-employment income to the IRS. A difference-in-difference strategy is used, considering three expansions in the EITC and comparing changes across filers with and without children. The expansions are predicted to increase the reporting of self-employment income for those in the phase-in region of the EITC and to reduce the reporting of self-employment income for those in the phase-out region. Among the lowest-income filers, the 1994 EITC expansion is associated with a significant increase in the probability of reporting positive self-employment income, equal to 3.2 percentage points for unmarried filers and 4.1 percentage points for married filers.

Keywords: EITC; self-employment (search for similar items in EconPapers)
JEL-codes: H24 H31 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2009-04
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Published, National Tax Journal, Vol. 62, no. 2, 2009, pp. 191-217.

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Journal Article: The Earned Income Tax Credit and Reported Self-Employment Income (2009)
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