Association for Public Policy Analysis & Management

Researchers have long recognized the contribution of the Earned Income Tax Credit (EITC) as a tool to increase the labor supply (Hotz and Scholz, 1996; Katz, 1998; Neumark, 2011; Schmeiser, 2007; Scholz, 1996), especially among women.  More recent work has focused on the impact that the credit has on local labor markets (Jacob France Institute Report, 2004; and Berube, 2009) whereby the multiplier effect of the program is estimated at the local level.  This paper furthers the economic impact argument by using a quasi-experimental design of county-dyadic pairings (each county within metropolitan areas that span more than one state are matched to every other county in the metropolitan area and identified as a border or a hinterland) between 1998 and 2012 to isolate the economic impact of state-level EITC. Further, the analyses focus on sectoral level impacts for those sectors most likely impacted by the credit (retail trade, accommodation and food services, etc.).  It is determined that the credit does have an impact at the local level, but not on every indicator and not within every industry.