Kartik B. Athreya and Aaron Steelman
There has been a longstanding debate in the United States about how to assist low-income families. The Earned Income Tax Credit (EITC) is designed to augment income while encouraging work: The tax credit increases with earnings for low levels of household income, but declines and ultimately is phased out as incomes rise. The EITC appears to have increased labor force participation but its effects on hours worked is ambiguous. Given the low levels of net wealth of most EITC recipients, it is likely that many are credit constrained and unable to smooth their consumption patterns.
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