The Efficacy of the EITC: Evidence from Madison County, New York

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. For tax years 2002 through 2004, we find that the EITC is responsible for significantly lowering the poverty rate of the sample, from 57 to 49 percent. The EITC has the largest impact on single-parent households, lowering their poverty rates by 10.5 percentage points. However, the EITC has negligible effects on the poorest households in the sample - childless singles. A majority (64 percent) 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 is not an assistance program that helps families move toward economic independence. 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.