The Impact of the Earned Income Tax Credit on Economic Well-Being: A Comparison Across Household Types

Using survey data from Earned Income Tax Credit (EITC) recipients in Madison County, New York, we evaluate the effectiveness of the EITC in improving the economic well-being of low-income households. In particular, we examine the impact of the EITC across household types. For tax years 2002 through 2004, we find that the EITC is responsible for significantly lowering the poverty rate of EITC recipients, from 57 to 49%. In fact, for households below the poverty line, the EITC fills 31% of the gap between their adjusted gross income and the poverty line. The EITC has the largest impact on single parent households, lowering their poverty rate by 11.2 percentage points and reducing their poverty gap by almost 35%. However, the EITC has negligible effects on the poorest households in the sample—childless singles. A majority (64%) of EITC recipients intends to use at least some of the refund on basic needs and almost half plan on using part of their refund for debt repayment. This suggests that the EITC helps the majority of recipients get by but does not increase their economic mobility. Somewhat surprisingly, single parent households in the sample are not that different from married parent households in terms of EITC amounts, poverty rates, use of credit, and participation in government programs, despite earning less.