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Child-Based Refundable Tax Credits and Employment Patterns Amongst Low-Skilled Married Couples: Evidence from the 2001 US Tax Reforms

Author:

Krista Ruffini

London School of Economics’ Institute of Public Affairs, GB
About Krista
2012 graduate of the M.P.A. in Public and Economic Policy
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Abstract

Over the past twenty-five years, federal assistance to low-income families in the United States has evolved from a system based primarily on cash entitlements to one favouring in-work tax credits, most notably the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC). Given that the EITC is the largest federal anti-poverty programme and the CTC is the largest federal tax credit to households with children, it is imperative to analyse whether these programmes achieve their stated objectives of increasing labour force attachment amongst low-income families. Whereas a rich literature concludes that in-work tax credits increase employment amongst lone mothers, fewer analyses have considered the implications of these credits for married parents. Using a simple differences-in-differences framework to compare the labour supply of low-educated married parents to married couples without children, results indicate that the labour force participation of married parents increased relative to childless couples, with paternal employment increasing approximately 3.4 percentage points. However, there is no systematic workforce participation response amongst low-educated mothers. Although increases in paternal employment corroborate earlier findings, in contrast to previous evaluations there is no negative participation response amongst mothers. In accordance with economic theory, these results suggest the availability of a partially-refundable CTC through higher income levels offset some negative employment incentives secondary earners faced under earlier schemes.

How to Cite: Ruffini, K., 2012. Child-Based Refundable Tax Credits and Employment Patterns Amongst Low-Skilled Married Couples: Evidence from the 2001 US Tax Reforms. The Public Sphere: Journal of Public Policy, 1(1), pp.5–14.
Published on 01 Jan 2012.
Peer Reviewed

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