Question

Consider Eleanor, who qualifies for the earned income tax credit as depicted in Figure 13.8. Suppose that Eleanor can earn $ 8 per hour. Taking into account the EITC and ignoring other aspects of the tax and transfer systems:
a. How much do her earnings increase when her labor supply increases from 0 to 1,000 hours per year?
b. How much do her earnings increase when her labor supply increases from 1,000 to 1,500 hours per year?
c. How much do her earnings increase when her labor supply increases from 1,500 to 2,000 hours per year? In each case, compute the incremental amount of earnings associated with the increase in work effort. Relate your answer to the implicit marginal tax rates embodied in the EITC.


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  • CreatedMarch 25, 2015
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