Difficult Calculations: Low‐Income Workers and Marginal Tax Rates

Romich, Jennifer L.

doi:10.1086/499086

Cited by 39 publications

(32 citation statements)

References 24 publications

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“…One could posit that the reason researchers have not found a relationship, or found one smaller than expected, is because program recipients are, by and large, unaware of the income limits on their benefits until they start earning more and begin to lose benefits. In fact, as mentioned above, this was the finding of Jennifer Romich after interviewing program recipients (Romich 2006). I have confirmed this finding in interviews I have conducted as well.…”

Section: Methodssupporting

confidence: 77%

The Effects of Combined Marginal Tax Rates on the Working Poor: Evidence from the Current Population Survey and the Survey of Income and Program Participation

Trampe

2011

Poverty & Public Policy

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Most works that have been done concerning the effects on work effort of the income based phase-out of assistance programs have been specific to one program or another. Most theorists believe, however, that the primary issue is the marginal tax rates faced by those facing the phase-out of several programs at once. This paper examines data from the Current Population Survey from 1993-2006 and the first four phases of the Survey of Income and Program Participation from 1993, 1996 and 2001 to study the effect on hours worked for those losing benefits from several different programs as a percentage of additional income and in particular to look for a delayed effect. It finds a small but significant effect and also finds evidence that the effect is partially delayed as recipients become aware of their own marginal tax rates slowly over time.

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Section: Methodssupporting

confidence: 77%

The Effects of Combined Marginal Tax Rates on the Working Poor: Evidence from the Current Population Survey and the Survey of Income and Program Participation

Trampe

2011

Poverty & Public Policy

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“…income tax rates among U.S. households (see e.g., Romich, 2006;and Ellwood and Liebman, 2001). If these households are very close to a large jump in the marginal tax rate, the substitution effect coming from the phasing out of benefits will, all else equal, lower hours.…”

Section: Demographics and Preferencesmentioning

confidence: 99%

Single Mothers and the Earned Income Tax Credit: Insurance Without Disincentives?

2014

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu States. An aspect of the EITC that has received little attention thus far is its role as a public insurance program. Yet, the structure of the EITC necessarily protects its primary class of recipients, unskilled single mothers, against major risks they face to both wages and changes in family structure. Our study provides the first quantitative statement about the insurance provided by the EITC. We study a dynamic model of consumption, savings, and labor supply in which households face wage and demographic risk, but have only limited selfinsurance capacity. We use the model to compare outcomes under the EITC to the counterfactual in which it is completely eliminated. We find that the EITC provides substantial insurance to unskilled single mothers: The program reduces consumption volatility, as measured by the coefficient of the variation, by 12 percentage points or more, even as it allows these households to save less. Importantly, this insurance provision may not be compromising incentives to work: The model suggests that the EITC increases the labor supply of unskilled single mothers substantially at the extensive margin. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E S NON-TECHNICAL SUMMARYIn this paper, we evaluate the Earned Income Tax Credit (EITC), which is the largest antipoverty program in the United States to date. The EITC is a fully refundable income tax credit. For low-income households who qualify, the EITC frequently constitutes a significant portion of after-tax wage income. The largest population of EITC recipients is single mothers, which is the focus of our study.We find that the EITC effectively insures single mothers against volatility in wage income and the risk of needing to care for dependents. That is, the model suggests the EITC may be substantially improving the ability of young unskilled mothers to withstand shocks and smooth consumption over the course of their lives. In fact, our results suggest that the program reduces consumption volatility by 12 percentage points or more. The EITC does this while allowing households to save less and consume more.Our model also addresses the labor supply effects of the EITC, and finds that it encourages labor force participation among single mothers but reduces hours worked. Given that the EITC compresses earnings volatility while simultaneously increasing labor force participation and mean earnings, our conclusion is that the EITC is insurance largely w...

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“…The effect is very high marginal tax rates (Jennifer L. Romich 2006). For example, for every additional dollar of income earned, housing assistance for rent decreases by about one-third, Food Stamps benefits also decrease by about one-third, and depending on the state in which she resides, TANF is reduced by between 50 and 66 cents.…”

Section: Mothers' Time and Antipoverty Programsmentioning

confidence: 99%

Time Binds: US Antipoverty Policies, Poverty, and the Well-Being of Single Mothers

Albelda

2011

Feminist Economics

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Many US antipoverty programs and measures assume mothers have little, intermittent, or no employment and therefore have sufficient time to care for children, perform household tasks, and apply for and maintain eligibility for these programs. Employment-promotion policies directed toward low-income mothers since the late 1980s have successfully increased their time in the labor force. However, low wages and insufficient employer-based benefits often leave employed single mothers with inadequate material resources to support families and less time to care for their children. The lack of consideration given to the value of poor women's time in both the administration and benefit levels of antipoverty government support, as well as the measures used to calculate poverty, place more binds on poor and low-income mothers' time. Ignoring these binds causes researchers and policymakers to overestimate single mothers' well-being and reduces the effectiveness of the policies.

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Difficult Calculations: Low‐Income Workers and Marginal Tax Rates

Cited by 39 publications

References 24 publications

The Effects of Combined Marginal Tax Rates on the Working Poor: Evidence from the Current Population Survey and the Survey of Income and Program Participation

The Effects of Combined Marginal Tax Rates on the Working Poor: Evidence from the Current Population Survey and the Survey of Income and Program Participation

Single Mothers and the Earned Income Tax Credit: Insurance Without Disincentives?

Time Binds: US Antipoverty Policies, Poverty, and the Well-Being of Single Mothers

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