We consulted various resources while preparing our report on options for a state earned income tax credit (EITC). Here is a selection of those resources, which focus on the federal EITC. Other research may provide alternate points of view.
- Dahl, G. and Lochner, L. (2012). The Impact of Family Income on Child Achievement: Evidence from the Earned Income Tax Credit. American Economic Review 2012, 102(5).
- This paper's estimates "imply that a $1,000 increase in income raises combined math and reading test scores by 6 percent of a standard deviation in the short run." Test gains, the report says, "are larger for children from disadvantaged families and robust to a variety of alternative specifications."
- Eissa, N. and Hoynes, H. (2005). Behavioral Responses to Taxes: Lessons from the EITC and Labor Supply. National Bureau of Economic Research Working Paper.
- This paper is a review of previous studies on how the federal EITC affects people's work habits. The federal EITC, the paper finds, appears to affect people's decisions whether or not to seek paid work, but does not have much impact on the number of hours they work.
- Hoynes, H., Miller, D., and Simon, D. (2012). Income, the Earned Income Tax Credit, and Infant Health. National Bureau of Economic Research Working Paper.
- This paper examines the effect of the federal EITC on infant health outcomes. It finds that increased EITC income reduces the incidence of low birth weight and increases mean birth weight. The paper notes that its results suggest that part of the mechanism for this improvement in birth outcomes is the result of more prenatal care and less negative health behaviors, such as smoking. It finds little role for changes in health insurance in this regard.
- Internal Revenue Service (2014). Compliance Estimates for the Earned Income Tax Credit Claimed on 2006–2008 Returns.
- This 2014 IRS study uses data from audits of federal EITC claims filed for 2006, 2007, and 2008. The IRS finds that errors on EITC returns are common, and the EITC claims on these incorrect returns are far more likely to be too high (relative to the correct claim) than too low. The single biggest source of error appears to be confusion about which parent is entitled to claim a particular child as a dependent. Another common source of error comes from misreporting of income, which is far more common for self-employment income than for wage income even though reported self-employment income on EITC returns totals barely 10 percent of reported wage income. Wage income is much easier to verify than self-employment income is.
- Meyer, B. (2010). The Effects of the Earned Income Tax Credit and Recent Reforms. In Tax Policy and the Economy, Volume 24 (2010). National Bureau of Economic Research.
- This paper finds that the federal EITC targets resources at those below the poverty line, particularly families with children, thereby raising more than 4 million people above the poverty line. "While it is especially aimed at people around the poverty line, it also raises 1.4 million people above half the poverty line," the paper concludes. Expansions to the federal EITC in 2009 were targeted at large families that are "especially likely to be low-income." Studies of the effects of the EITC on employment, the paper notes, imply that the credit has sharply increased the fraction of single mothers who work. Discussing proposals to expand the EITC for noncustodial parents, the paper states that "noncustodial EITCs are unlikely to stimulate employment as successfully as the current EITC because the vast majority of noncustodial parents already work."
More information on the federal EITC is in our report. Additional information on the EITC will also be posted here on the LAO California Economy and Taxes blog.