"Do EITC Expansions Pay for Themselves? Effects on Tax Revenue and Public Assistance Spending"

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Event Type: 
Brown Bag
Date and Time: 
Thursday, November 29, 2018
12:00 pm – 1:00 pm
Jacob Bastian
University of Chicago

This paper studies how behavioral responses to the Earned Income Tax Credit (EITC) affect the net economic costs of the EITC, one of the most important programs in the U.S. social safety net. Using administrative tax data linked to Current Population Survey data, the research design exploits three decades of plausibly exogenous EITC policy changes, which generate variation in EITC eligibility over time based on family structure. We find that behavioral responses to the EITC---higher employment and earnings---increase taxes paid and decrease public assistance received by mothers, and offset at least 61 percent of the EITC's contemporaneous cost. Furthermore, accounting for longer-run behavioral responses and the present value of improved health, decreased crime, and positive long-run economic outcomes of children of EITC recipients, suggests that EITC expansions may completely ``pay for themselves.''