Trapezoidal income support structures (like the Earned Income Tax Credit) may fail as an economy-wide stabilizer during periods of economic recession.

"The Earned Income Tax Credit is the largest and perhaps most effective income support program in the U.S., providing roughly 63 billion dollars to about 25 million recipients in 2019. The EITC is unique among income support policies in that it is designed with a “phase-in” to incentivize work: the benefit cannot be claimed if earnings are too low, increases for a time as earnings grow, and then levels off before eventually phasing out like the typical means-tested benefit. This trapezoidal structure is, not surprisingly, the subject of criticism for guaranteed income advocates. While there is some disagreement as to whether the phase-in is effective in increasing workforce participation on the extensive margin (the choice to work at all), the phase-in clearly locks aid behind labor market outcomes that are at least partly outside the control of potential recipients. As noted above, this means the EITC may fail as an economy-wide stabilizer during periods of economic recession."

theoretical


Loading...