American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Using Differences in Knowledge across Neighborhoods to Uncover the Impacts of the EITC on Earnings
American Economic Review
vol. 103,
no. 7, December 2013
(pp. 2683–2721)
Abstract
We estimate the impacts of the Earned Income Tax Credit on labor supply using local variation in knowledge about the EITC schedule. We proxy for EITC knowledge in a Zip code with the fraction of individuals who manipulate reported self-employment income to maximize their EITC refund. This measure varies significantly across areas. We exploit changes in EITC eligibility at the birth of a child to estimate labor supply effects. Individuals in high-knowledge areas change wage earnings sharply to obtain larger EITC refunds relative to those in low-knowledge areas. These responses come primarily from intensive-margin earnings increases in the phase-in region.Citation
Chetty, Raj, John N. Friedman, and Emmanuel Saez. 2013. "Using Differences in Knowledge across Neighborhoods to Uncover the Impacts of the EITC on Earnings." American Economic Review, 103 (7): 2683–2721. DOI: 10.1257/aer.103.7.2683Additional Materials
JEL Classification
- H23 Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
- H31 Fiscal Policies and Behavior of Economic Agents: Household
- J22 Time Allocation and Labor Supply
- J23 Labor Demand
- J31 Wage Level and Structure; Wage Differentials