a) Use the data in Table 1 and Table 2 to answer the following questions: i) What is the difference-in-difference estimate of the introduction of the EITC on employment rates and hours worked of the target group? ii) Interpret your findings. Are they consistent with economic theory? [15 marks] b) What is the key assumption one needs to make so that the difference-in-difference estimator identifies the causal impact of the introduction of the EITC? Can this assumption be "tested" in this case? What kind of data would you need to do so? [10 marks]In 1975, the US government introduced the Earned Income Tax Credit (EITC), an in-work benefit system designed to encourage people with children to work. The 1975 EITC provided a 10 percent earnings subsidy to working parents with low earnings (below $18,000 in 2013 US dollars). You are asked to estimate the effect of the introduction of EITC on the labour supply of low income mothers. Researchers have collected data on labour force participation (an indicator variable for employment) and number of hours worked per week (this variable is 0 if the mother is not working) for low-income mothers (who are eligible for the EITC) and low-income women without children (who are ineligible for the EITC), both before and after the EITC introduction: Table 1: Employment Rates Before EITC introduction . After EITC introduction Mother (treatment group) 0.56 0.62 Childless (control group) 0.78 0.80 Table 2: Average Hours Worked per Week Before EITC introduction After EITC introduction Mother (treatment group) 16.5 19.0 Childless (control group) 23.7 24.5 Continues on next page