TY - JOUR
T1 - The optimal long-run earned income tax credit
AU - Regev, Eitan
AU - Strawczynski, Michel
N1 - Publisher Copyright:
© IAET
PY - 2021/9
Y1 - 2021/9
N2 - Governments implementing an earned income tax credit (EITC) aim to increase the propensity to work of the working poor in order to alleviate poverty. If this goal is attained in the long run, will the optimal EITC increase or decrease? We deal with this question using simulations with endogenous participation and intensive-margin elasticities. When the participation elasticity is endogenous, the optimal long-run EITC decreases. However, if we add endogenous intensive-margin elasticity, the optimal EITC increases because the working poor work harder, making the EITC cheaper at the margin. The optimal increasing long-run EITC pattern holds also with a constant elasticity of labor.
AB - Governments implementing an earned income tax credit (EITC) aim to increase the propensity to work of the working poor in order to alleviate poverty. If this goal is attained in the long run, will the optimal EITC increase or decrease? We deal with this question using simulations with endogenous participation and intensive-margin elasticities. When the participation elasticity is endogenous, the optimal long-run EITC decreases. However, if we add endogenous intensive-margin elasticity, the optimal EITC increases because the working poor work harder, making the EITC cheaper at the margin. The optimal increasing long-run EITC pattern holds also with a constant elasticity of labor.
KW - earned income tax credit
KW - welfare to work
UR - http://www.scopus.com/inward/record.url?scp=85071878587&partnerID=8YFLogxK
U2 - 10.1111/ijet.12234
DO - 10.1111/ijet.12234
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AN - SCOPUS:85071878587
SN - 1742-7355
VL - 17
SP - 284
EP - 308
JO - International Journal of Economic Theory
JF - International Journal of Economic Theory
IS - 3
ER -
