Lecture 3 (Article LS) - February 7 2017 Yuya Takahashi Amy...

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February 7, 2017 Yuya Takahashi, Amy Hong, Alex Lopez, Danial Rafique, Charlie Wang 1
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Today EITC Empirical work, Eissa and Liebman (1996, QJE) Next Theory of labor demand Empirical work, Card and Krueger (1994, AER) 2
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Earned Income Tax Credit Welfare programs create work disincentives An alternative approach to improving the economic status of low-income persons is EITC Began in 1975 and has been expanded since then Consider a household with a working mother and two kids. In 2005 She can claim a tax credit of up to 40% of earnings if she earns less than $11,000 a year The maximum credit of $4,400 is available if her salary is not above $14,370 Beyond that, each additional dollar earned reduces the credit by 21.06 cents The credit completely disappears at $35,263 3
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