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Implicit Tax Rates of the Expanded Earned Income Tax Credit for Welfare Recipients in North Carolina
Author(s) -
WALDEN MICHAEL L.
Publication year - 1996
Publication title -
journal of consumer affairs
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.582
H-Index - 62
eISSN - 1745-6606
pISSN - 0022-0078
DOI - 10.1111/j.1745-6606.1996.tb00062.x
Subject(s) - earned income tax credit , economics , tax credit , earnings , welfare , labour economics , state income tax , ad valorem tax , tax reform , value added tax , indirect tax , public economics , finance , market economy
High implicit tax rates for welfare recipients have been cited as a deterrent to additional work effort by these households. The expanded earned income tax credit (EITC), passed by Congress in 1993, was enacted in part to reduce the implicit tax rates and increase work effort by very low income households. This paper calculates implicit tax rates for a typical welfare family in North Carolina before and after the expanded EITC. Although the expanded EITC reduces implicit tax rates for the typical welfare household at very low levels of earnings, implicit tax rates are still found to be substantial, especially when work and child care costs are included.