Social Efficiency of Proposed 2015 EITC
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Social Efficiency of Proposed 2015 EITC

Social Efficiency of Proposed 2015 EITC

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Published: June 1, 2017 0 0 151
By: John Wagner, Cal Poly Pomona
Category: Economics
Hashtags: #Economics #Microeconomics #Research #socialefficiency

What is the social efficiency of the proposed 2015 Earned Income Tax Credit (EITC)?

I look at the effect of the proposed EITC changes on the budget constraints of low-income workers, comparing the effect to the tax burden that low-income workers experience. I then combine these with two second-level analyses. First I discuss empirically observed worker behavior under subsidies and taxes. Then I look at the disproportionate cost-of-work faced by low-income potential workers. Altogether, these findings indicate that the EITC mechanism is pareto improving for current workers when it counters their tax burden distortions. The findings also show that the EITC is very pareto improving for potential workers when the subsidy lowers the cost-of-work threshold, expanding labor market participation.