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Do In-Work Tax Credits Serve as a Safety Net?

Do In-Work Tax Credits Serve as a Safety Net? <p>We test the EITC&apos;s response to economic need. Using IRS data we exploit differences in timing and severity of economic cycles across states. Because the EITC requires earned income, there is a theoretical ambiguity in the credit&apos;s cyclicality. We find higher unemployment leads to increased likelihood of EITC recipiency and in credit amounts received for married couples but has insignificant effects for single individuals. The EITC&apos;s protective effects are concentrated among skilled workers. The EITC mitigates income shocks for married couples with children and groups likely to have moderate earnings, but does not for most recipients: single parents with children.</p> http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Human Resources University of Wisconsin Press

Do In-Work Tax Credits Serve as a Safety Net?

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Publisher
University of Wisconsin Press
Copyright
©by the Board of Regents of the University of Wisconsin System
ISSN
1548-8004

Abstract

<p>We test the EITC&apos;s response to economic need. Using IRS data we exploit differences in timing and severity of economic cycles across states. Because the EITC requires earned income, there is a theoretical ambiguity in the credit&apos;s cyclicality. We find higher unemployment leads to increased likelihood of EITC recipiency and in credit amounts received for married couples but has insignificant effects for single individuals. The EITC&apos;s protective effects are concentrated among skilled workers. The EITC mitigates income shocks for married couples with children and groups likely to have moderate earnings, but does not for most recipients: single parents with children.</p>

Journal

Journal of Human ResourcesUniversity of Wisconsin Press

Published: May 10, 2017

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