The impact of the Earned Income Tax Credit on poverty, labor supply, and human-capital accumulation

The Earned Income Tax Credit (EITC) has become the largest public expenditure program aimed at providing support to low-income, working families. This dissertation evaluates how effective both the federal and state EITCs have been at increasing labor force participation and reducing poverty among adult women from 1982 to 1996. Controls are included for other policies aimed at helping low-income families, such as minimum wages and welfare waivers. Using pooled cross-sectional data from the March CPS, the federal EITC is found to significantly increase labor-force participation and reduce poverty, especially among women with no more than a high school education. In some specifications, refundable state EITCs are correlated with increased labor-force participation, but the results are not statistically significant. The minimum wage is found to be correlated with increased probabilities that single women are out of the labor force and in poverty. The results also indicate that welfare waivers are associated with increased labor-force participation and reduced poverty, although waivers are found to be less effective than expansions of the EITC.; Among women with children, the EITC subsidizes labor-force participation, with the effect particularly large among younger women. It is possible that increased participation will result in reduced school enrollments, especially among younger single mothers. If such a trade-off occurred, it would represent a substitution of experience for education, a substitution that will potentially affect long-term economic success. This dissertation also uses data from the March CPS to investigate the impact of the EITC on school enrollment among young, single women. Estimates obtained using a multinomial logit model indicate that expansions of the EITC are associated with significant increases in both employment and enrollment. The expansions of the EITC are associated with significant declines in young, single mothers being non-enrolled and non-employed.