Research Paper

Do In-Work Programs Function as a Safety Net?
Hilary Hoynes (Affiliate in Economics) with graduate researcher Elira Kuka (Economics)

One feature of a safety net program is that it raises incomes at the bottom of the income distribution. Using this definition, the Earned Income Tax Credit (EITC) is the most important safety net for low income families: the release of the new supplemental poverty measure reveals that the EITC lifts 6 million persons (3 million children) from poverty, more than any program (Short 2010). Additionally, however, a second feature of a safety net is that usage increases in times of need. This feature of the EITC has not been explored and is the focus of this research project.

Researchers use tax data to explore how EITC caseloads and expenditures vary with the business cycle. Their research design uses variation across state unemployment rates in a panel fixed effects model; a priori, a downturn may lead to higher EITC caseloads (decline in earnings increases eligibility) or lower caseloads (decline in employment reduces eligibility). Hoynes and Kuka’s prior is that the net effect of these two changes may vary across families with married couple recipients showing net counter-cyclical EITC caseloads and single parent recipients showing net pro-cyclical EITC caseloads.