The Earned Income Tax Credit (EITC) provides a cash sub sidy for every $1 earned by individuals with one child who have incomes below $39,296 per year.
a. How might the EITC raise an individual’s overall work effort? How might the EITC lower an individual’s work effort?
b. Why does the EITC exacerbate the marriage penalty for low-in-come workers? Suggest an alternative method of calculating the EITC that reduces this penalty.