Economic Quarterly

December 21, 2010

Richmond Fed's Economic Quarterly Examines the Effects of the Earned Income Tax Credit on Lower Income Families

Richmond, Va.

In the new issue of Economic Quarterly, Kartik B. Athreya and Devin Reilly of the Richmond Fed and Nicole B. Simpson of Colgate University consider several relatively overlooked aspects of the Earned Income Tax Credit (EITC), the largest federal cash-assistance program for lower income families. The authors find significant differences between the labor market and life-cycle income characteristics of EITC recipients and non-recipients. For instance, the EITC increases lifetime earnings of recipients, with the effects being more pronounced earlier in life, when EITC levels are higher. The program has increased labor force participation but the effects on hours worked are unclear. Relatedly, the EITC acts like a negative income tax for those who qualify for the program. Thus, for very low income households, marginal tax rates are negative. However, effective marginal tax rates change as income rises. In particular, on average, single-parent households that receive the EITC face some of the highest marginal tax rates in the United States.

You can find the full text of this article and others in the latest issue of Economic Quarterly at:

Also in the Third Quarter 2010 issue:

  • Instability and Indeterminacy in a Simple Search and Matching Model by Michael U. Krause and Thomas A. Lubik
  • How Large Has the Federal Financial Safety Net Become? By Nadezhda Malysheva and John R. Walter
  • The Politics of Sovereign Defaults by Juan Carlos Hatchondo and Leonardo Martinez

The Economic Quarterly is a free publication containing economic analysis pertinent to Federal Reserve monetary and banking policy. For free copies or more information, contact the Federal Reserve Bank of Richmond's Research Department—Publications at 800.322.0565.

The Richmond Fed serves the Fifth Federal Reserve District, which includes the District of Columbia, Maryland, North Carolina, South Carolina, Virginia and most of West Virginia. As part of the nation's central bank, we're one of 12 regional Reserve Banks that work together with the Federal Reserve's Board of Governors to strengthen the economy and our communities. We manage the nation's money supply to keep inflation low and help the economy grow. We also supervise and regulate financial institutions to help safeguard our nation's financial system and protect the integrity and efficiency of our payments system.


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