Giving Compass' Take:

· Although the Earned Income Tax Credit was established to promote work in low-income communities, a new study from a Princeton economist finds that it may not be so effective. 

· What did economist Henrik Kleven find in his study? What can be done to improve the EITC and promote work?

· Check out this article to learn more about the Earned Income Tax Credit. 

A research paper from Princeton economist Henrik Kleven, released in draft form in September after circulating as a set of slides for months, looks at the EITC’s creation and the four times it’s been expanded, including a big increase in the credit’s value in 1993.

Kleven found, consistent with several past studies, that the 1993 increase was followed by a large increase in employment. But he finds that no other increase had this effect, and that the 1993 increase might have more to do with both state and federal welfare reforms and the economic boom of the ’90s than with the EITC itself.

Kleven’s conclusion is a stark departure from the existing literature on the credit, and, if true, undermines the case for the EITC on both the left and right. Conservatives and business interests have long grudgingly tolerated or outright supported modest expansions of the EITC because of its tie to work: It isn’t welfare, but an earned benefit that helps the economy by increasing labor force participation. If it doesn’t help labor force participation, that rationale goes away.

Similarly, liberals have long supported the program as a politically realistic way to direct money to low-income people, a benefit whose impact is boosted by the additional wages recipients earn because the credit pushes them to work more. But if the conservative rationale for it is bunk, and the additional pay doesn’t result because the credit doesn’t actually spur more work, then this rationale similarly falls away.

Read the full article about the Earned Income Tax Credit by Dylan Matthews at Vox.