The Incidence of the EITC: New Evidence from State EITC Policy Variation

• In Event: Wage Subsidies and Tax Credits

Abstract

We study the effect of state-level EITC expansions on pre-tax wages. Critics of the EITC worry that employers capture a substantial share of the benefits of the credit by reducing the pre-tax wage that employees are willing to accept. We study this phenomenon using data from the CPS and state-by-year variation in the adoption of state-level earned income tax credits. We find evidence against substantial effects of state-level EITCs on pre-tax wages, suggesting that employers do not capture a substantial share of the credit.

Authors

• Bennett Bunten, Coase-Sando Institute

• Jacob Goldin, jsgoldin@uchicago.edu

• Ian Peacock