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The Interaction of Metropolitan Cost-of-Living and the Federal Earned Income Tax Credit: One Size Fits All?

Fitzpatrick, Katie and Thompson, Jeffrey P.

Abstract:

This paper explores the interaction between the federal Earned Income Tax Credit (EITC) and the cost-of-living faced by single mothers. After the 1993 EITC expansion, we identify up to an 8 percentage point increase in labor force participation for single mothers in the lowest cost areas but no discernible response in the highest cost areas. We conclude that the EITC’s welfare-enhancing properties are undermined by the interaction of the program’s fixed national rules and geographic variation in wages and the cost-of-living. In addition, our findings suggest that the EITC does little to reduce joblessness in many of the nation’s largest cities.

Citation

Fitzpatrick, Katie and Thompson, Jeffrey P. (2010), The Interaction of Metropolitan Cost-of-Living and the Federal Earned Income Tax Credit: One Size Fits All?, National Tax Journal, 63:3, pp. 419-45

DOI: dx.doi.org/10.17310/ntj.2010.3.02