Essays on information, social interactions, and the decisions to work and participate in the Earned Income Tax Credit

This dissertation is comprised of a presentation chapter and two essays.; One of the main innovations in recent welfare history was the expansion in the early 1990s of a previously small tax program known as the Earned Income Tax Credit (EITC). This program delivers monetary assistance to low-income working families while providing positives incentives to work. Despite the relative complexity and nontraditional nature of the program rules and application procedures, earlier research suggests that a high fraction of eligible families were claiming the credit just a few years after its introduction and that periods of expansion in the benefits amounts and subsidy rates were accompanied by significant increases in the labor force participation of single mothers. The relatively fast penetration of the program motivates the central questions of the two articles in this dissertation: How formal and informal channels of information affected participation in the program and the work decisions of its participants?; In Chapter 2, we will address the question of whether part of the learning process about the EITC and the availability of jobs occurred through the existence of networks at the neighborhood level. If individuals learn from their neighbors, increases in the incentives to work should have a direct effect on work decisions and an indirect effect through the increased flow of information about jobs and the rules of the program. Our results suggest strong direct and spillover effects of the program on the work decisions of welfare-prone single mothers.; In Chapter 3, we explore a second explanation for the high participation rate of the EITC, which has a clear interpretation as a formal information transmission channel: the availability of tax preparation services. We find that families living in areas with a higher number of tax preparation services are significantly more likely to participate in the Earned Income Tax Credit.; Together, the two chapters suggest that information is a relevant issue in explaining the relative success of the Earned Income Tax Credit and that both formal and informal channels were relevant for the high penetration of the program that we see today.