Long-Term Tax Liability and the Effects of Refundable Credits

Abstract

The authors use a unique data set of federal tax returns to analyze usage and participation patterns of the Earned Income Tax Credit (EITC) over the period 1989–2006. The authors find that most EITC recipients claimed the EITC for short periods, 61% for 1 or 2 years. Over the period examined, the EITC reached approximately 50 percent of the taxpayers with children. Finally, the authors find considerable income mobility among the EITC eligible population. Only 11 percent of those claiming the EITC in 1990 and in the third decile of income were in the same decile in 2003. They also find that 20 percent of EITC claimants claim the EITC for more than 5 years.

Keywords: Earned Income Tax Credit, EITC, Taxation, Income Support

JEL Classification: H00, H24