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Young Unskilled Women and the Earned Income Tax Credit: Insurance Without Disincentives?
The Earned Income Tax Credit (EITC) is the single most important transfer program in place in the United 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 ...
Earned income tax credit recipients: income, marginal tax rates, wealth, and credit constraints
The Earned Income Tax Credit (EITC) has evolved into the largest anti-poverty program in the United States by providing tax credits for low and moderate income working families. In this paper, we describe the characteristics of EITC recipients at various ages using Current Population Survey data. In addition, we discuss the relevance of the EITC in affecting marginal income tax rates in the United States and discuss the effects of the EITC on household labor supply decisions. Lastly, using data from the Survey of Consumer Finances, we estimate wealth distributions for EITC recipients and ...
Default Risk and Private Student Loans: Implications for Higher Education Policies
The private market for student loans has become an important source of college financing in the United States. Unlike government student loans, the terms on student loans in the private market are based on credit status. We quantify the importance of the private market for student loans and of credit status for college investment in a general equilibrium heterogeneous life-cycle economy. We find that students with good credit status invest in more college education (compared to those with bad credit status) and that this effect is more pronounced for low-income students. Furthermore, results ...
Unsecured debt with public insurance : from bad to worse
In U.S. data, income interruptions, the receipt of public insurance, and the incidence of personal bankruptcy are all closely related. The central contribution of this paper is to evaluate both bankruptcy protection and public insurance in a unified setting where each program alters incentives in the other. Specifically, we explicitly allow for distortion created by the default option and public insurance to affect 1) risk-taking, 2) borrowing, and 3) search effort. Our analysis delivers two striking conclusions. First, we find that U.S. personal bankruptcy law is an important barrier to ...