The Earned Income Tax Credit gives workers 20% of their earnings for earnings up to $12,000 and begins to reduce the credit by 33% for every dollar of earnings above $16,000. For an individual who earns $12 an hour and can work a maximum of 4000 hours in a year
- Draw the budget constraints before and after this EITC goes into effect. Label the number of hours of work and money income for each kink in the budget constraint.
- Draw indifference curves before and after the EITC goes into effect
- Explain the income and substitution effects of the EITC
- State how hours of work and money income will change (more, less, no change) for 3 different people. A does not work at all before the EITC. B works 1200 hours. And C works 2000 hours.