How Effective is the Earned Income Tax Credit?

Wednesday, Nov 13, 2019

New research by Princeton University Professor Henrik Kleven suggests that the impact of the Earned Income Tax Credit (EITC) on employment, particularly low-income women's labor force participation, may be overblown. One of the federal government's biggest anti-poverty programs, the EITC provides tax credits to lower-income working families, particularly those with children. The EITC is designed to incentivize poorer households to work more and the perception that it does so successfully has contributed to its expansion into the country’s largest cash benefit program. However, in a new working paper, Kleven presents evidence to the contrary. Based on a comprehensive analysis of every EITC reform at state and federal levels since 1975, he finds that the EITC does not explain much of the observed changes in employment rates between single women and single mothers. And moreover, the sharp increase in the labor force participation rate of poor, single mothers observed in the mid-to-late 1990s is more likely due to the confounding effects of welfare cuts (reductions in the Temporary Assistance to Needy Families) and a booming economy under the Clinton administration.

Read a summary of the working paper...