Friday, November 8, 2013
3017 Monroe (Washington Marriott)
*Names in bold indicate Presenter
The Earned Income Tax Credit program (EITC) has grown to become the largest cash transfer poverty reduction program in the United States. Past research has focused on a difference-in-differences approach to study the effect of the program on the labor supply of eligible workers, especially that of single mothers. But such an approach is known to be subject to selection bias. To circumvent these potential design issues we instead employ a within comparison research design to assess the effect of the program on labor supply. Using the U.S. Bureau of Labor Statistics’ National Longitudinal Survey of Youth 1979, we examine the effect of the EITC program on labor supply for households with children who “age out” of EITC qualifying child eligibility. Estimates using the full sample of women with two children indicate a 2.1 percentage point increase in female labor force participation when one child qualifies and a 2.7 percentage point increase when both qualify in comparison to when none of their children qualify. Stratifying the results by education and marital status, we find evidence of an even greater effect for unmarried mothers with less than a high school education: 14.3 and 23.2 percentage point increases in female labor force participation for one qualifying child and two qualifying children, respectively. We also employ an instrumental variable approach using number of qualifying children as an instrument for EITC amount that reflects a 0.011 percentage point increase in female labor supply for each dollar of EITC received, however, these results are not statistically significant. This paper applies a new method to evaluating the effectiveness of the EITC program and shows that the program can increase female labor force participation.