Does the Earned Income Tax Credit Reduce Saving by Low-Income Households?
نویسنده
چکیده
This paper analyzes the effect of the Earned Income Tax Credit (EITC) on investment income. Policy-makers have devoted substantial time and resources toward increasing the saving rate of low-income households, yet the EITC provides a substantial disincentive for individuals to save and realize investment income. I find a one percent increase in the aftertax return to saving causes a 3.05 percent increase in investment income. Nearly 40 percent of the decline over the last two decades in the fraction of EITC recipients with savings in income-bearing accounts can be explained by changing EITC incentives. A special thanks to my dissertation committee for their invaluable encouragement and comments: Jim Hines, Joel Slemrod (Chair), Jeff Smith, and Kevin Stange. Also, many thanks to anonymous referees, David Agrawal, Dave Cashin, Rob Garlick, Susan Godlonton, Bradley Heim (discussant), Emmanuel Saez, Dan Silverman, Daniel Wilson (discussant), International Institute of Public Finance 2011 participants, National Tax Association conference participants, and numerous seminar participants for helpful comments. All remaining errors are my own. *Assistant Professor, Department of Economics, University of Oregon: [email protected]. JEL Codes: D14, H23, H24.
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