The US earned income tax credit, its effects, and possible reforms

In this paper, I first summarize how the US Earned Income Tax Credit (EITC) operates and describe the characteristics of recipients. I then discuss empirical work on the effects of the EITC on poverty and income distribution, and its effects on labor supply. Next, I discuss a few policy concerns about the EITC: possible negative effects on hours of work and marriage, and problems of compliance with the tax system. I then briefly discuss some possible reforms to the structure of the current EITC.

Keywords: Welfare reform, Earned income tax credit, EITC, Earnings subsidies, Tax credits, Poverty
JEL-codes: D31, H24, I38, J38