Goldman School of Public Policy - University of California, Berkeley

Selected Publications

Is the EITC as Good as an NIT? Conditional Cash Transfers and Tax Incidence

Rothstein, Jesse. American Economic Journal: Economic Policy 2 (1), February 2010, p.p. 177-208.

Abstract

The EITC is intended to encourage work. But EITC-induced increases in labor supply may drive wages down. I simulate the economic incidence of the EITC. In each scenario that I consider, a large portion of low-income single mothers’ EITC payments is captured by employers through reduced wages. Workers who are EITC ineligible also see wage declines. By contrast, a traditional Negative Income Tax (NIT) discourages work, and so induces large transfers from employers to their workers. With my preferred parameters, $1 in EITC spending increases after-tax incomes by $0.73, while $1 spent on the NIT yields $1.39.