Abstract:

Despite ample evidence that the Earned Income Tax Credit (EITC) boosts labor supply, its underlying mechanisms remain underexplored. This study examines the hypothesis that the EITC supports employment by helping recipients afford personal transportation. I build a simulated instrument leveraging metro-level variation in EITC exposure to compare responses to policy changes between areas with varying commuting characteristics. Estimated employment effects are roughly 20% smaller where public transportation is abundant and 20% larger in car-dependent areas. Additional analyses show significant associations between EITC expansion and car ownership. The paper also presents new evidence on state-level EITCs and the 2009 EITC expansion.

Citation

Davis, Owen F. (2023). “How Does the Earned Income Tax Credit Work? Exploring the Role of Commuting and Personal Transportation.” Working paper.