Nada Eissa

Tax Reforms and Labor Supply

The 1980s were a period of substantial changes in the U.S. tax code and income distribution. Even after controlling for demand-side factors that altered the returns to education, researchers have shown that behavioral responses to tax reform remain substantial. This paper reviews the lessons that have emerged from research on the behavioral response to tax reforms, focusing primarily on the labor supply response. The paper also builds on that work by examining whether the dramatic responses in taxable income over the 1980s are due to an increase in male labor market participation. Microdata from 1976 to 1993 are consistent with only a small male labor supply response after the Tax Reform Act of 1986. This finding is important for the interpretation of previous work and for the design of tax policy.

Tax-Transfer Policy and Labor Market Outcomes

The Earned Income Tax Credit provides nearly

Taxes and the labor market participation of married couples: the earned income tax credit

40 billion to low-income families with children. A potential unintended consequence of the credit is lower pretax wages, in which case only part of the subsidy would accrue to workers. We examine the extent to which EITC expansions lower the pretax wages of working parents. Our findings are inconclusive. The gross hourly wages of less-skilled single women are found not to vary by the number of children, as does the EITC. In addition, the wages of black single mothers track the minimum wage for nearly the entire time period.