UC Berkeley

This dissertation investigates three questions related to the Earned Income Tax Credit, the largest cash-based, means-tested program in the United States. I study whether the EITC changes how much (as opposed to whether) workers choose to earn, whether increasing awareness of the program can increase participation, and to what extent eligible households take up the California supplement to the federal credit.

In Chapter 1, I propose a new strategy for identifying workers’ intensive-margin labor supply elasticity using within-year variation in anticipated year-end tax rates. I modify the standard non-linear budget set approach to include uncertainty about future employment. With uncertainty, households must forecast their annual income in order to anticipate the average and marginal tax rates that apply to their earnings. Using survey and administrative data, I find that low-income households’ labor supply responds more to expected tax rates at the end of the year, when certainty about annual income is greatest. I use the excess sensitivity to tax incentives near the end of the year, relative to other periods, to estimate an intensive margin labor supply elasticity between .08 and .18. This response is identified largely from non-linearity in the EITC schedule and implies a larger intensive margin response to this program than previous estimates.

In Chapter 2, my co-authors and I summarize six pre-registered, large-scale field experiments involving over one million subjects testing whether “nudges” could increase take-up of the Earned Income Tax Credit (EITC). Despite varying the content, design, messenger, and mode of our messages, we find no evidence that they affected households’ likelihood of filing a tax return or claiming the credit. We conclude that even the most behaviorally informed low-touch outreach efforts cannot overcome the barriers faced by low-income households who do not file returns.

In Chapter 3, my co-authors and I use administrative data from California on the population of Supplemental Nutrition Assistance Program (SNAP) recipients, linked to state tax records, to estimate the number of households who are eligible for California’s supplement to the federal EITC but do not claim it. We find that nearly half a million households who receive SNAP benefits and who were eligible for the state EITC in 2017 did not receive the credit. This includes approximately 42,000 eligible households who claimed the federal EITC but not the state credit; 110,000 eligible households who filed a state tax return but did not claim the state credit; and 290,000 eligible households who did not file a state tax return. The corresponding take-up rate for the CalEITC among eligible SNAP-enrolled households was 53%. Altogether, these households left on the table a total of $75 million in state EITC funds. If received, these credits would have increased incomes among these households by 2.6% and increased total state EITC outlays by 38.8%.