The Effect of the Earned Income Tax Credit in the District of Columbia on Poverty and Income Dynamics

43 Pages Posted: 16 Jul 2015

See all articles by Bradley Hardy

Bradley Hardy

American University

Daniel Muhammad

Government of the District of Columbia - Office of the Chief Financial Officer

Rhucha Samudra

American University

Date Written: June 14, 2015

Abstract

Using unique longitudinal administrative tax panel data for the District of Columbia (DC), we assess the combined effect of the DC supplemental earned income tax credit (EITC) and the federal EITC on poverty and income dynamics within Washington, DC, from 2001 to 2011. The EITC in DC merits investigation, as the DC supplement to the federal credit is the largest in the nation. The supplemental DC EITC was enacted in 2000, and has been expanded from 10 percent of the federal credit in 2001 to 40 percent as of 2009. To implement the study, we estimate least squares models with 0/1 dependent variables to estimate the likelihood of net-EITC income above poverty and near-poverty thresholds. We also estimate the likelihood of earnings growth and income stabilization from the EITC. To identify the effect of the EITC, we exploit variation in the EITC subsidy rate from 2008 to 2009, when an additional EITC bracket of 45 percent was added for workers with three or more dependent children, up from 40 percent in the previous year for workers with two or more children. We also estimate a model examining the impact of city-level changes to the EITC. The structure and richness of our data enable us to control for tax filer fixed effects, an important innovation from many previous EITC studies. Overall, we find that the combined EITC raises the likelihood of net-EITC income above poverty and near poverty by as much as 9 percent, with the largest consistent effects accruing to single-parent families.

Keywords: Poverty, Social Welfare Policy, Tax Expenditures, Labor Supply

JEL Classification: I32, I38, H24, J38

Suggested Citation

Hardy, Bradley and Muhammad, Daniel and Samudra, Rhucha, The Effect of the Earned Income Tax Credit in the District of Columbia on Poverty and Income Dynamics (June 14, 2015). Available at SSRN: https://ssrn.com/abstract=2630694 or http://dx.doi.org/10.2139/ssrn.2630694

Bradley Hardy (Contact Author)

American University ( email )

4400 Massachusetts Ave, NW
Washington, DC 20016
United States

Daniel Muhammad

Government of the District of Columbia - Office of the Chief Financial Officer ( email )

Washington, DC
United States

Rhucha Samudra

American University ( email )

4400 Massachusetts Ave, NW
Washington, DC 20016
United States

Do you want regular updates from SSRN on Twitter?

Paper statistics

Downloads
73
Abstract Views
685
rank
428,499
PlumX Metrics